Market watch: PSX posts record plunge, recovers later

Investors adopted 'dump-and-run' strategy, taking cue from slumping global markets

KARACHI: Pakistan Stock Exchange (PSX) witnessed a bloodbath on Monday in what was a historic rout for the market.

Stocks came in for heavy battering as the benchmark KSE-100 index crashed by nearly 6% during intra-day trading, recording the largest daily slump in history. It was followed by a dramatic recovery and the index pared nearly half of the losses.

As soon as trading began, investors adopted a 'dump-and-run' strategy as they rapidly offloaded their shareholding, taking cues from plunging global equity markets and the worst slump in international oil prices since the 1991 Gulf War.

The panic-induced selling caused the index to nosedive over 2,200 points in early trading, which led to a halt to trading activity for nearly 45 minutes as per the new PSX rules.

"The market halt is triggered as a standard protocol for risk management purposes," stated a PSX press release.

The pause offered an opportunity to buy cyclical stocks (of cement and steel sectors), which attracted investors not only due to near-term fundamentals but also because of safe-haven demand, stated an AHL Research report.

The 'market halt' had been introduced by the Securities and Exchange Commission of Pakistan (SECP) in PSX regulations in December 2019. It comes into action when the KSE-30 index moves 4% either way and remains there for five consecutive minutes.

"The objective of introducing the market halt is to safeguard investors and market participants during volatile trading," said the PSX statement.

During the halt, trading in all securities remains temporarily suspended in order to ensure a cooling-off period and run the mark-to-market activity as a risk management measure, it added.

According to the new rules, both indices and individual stocks can plunge or spike a maximum of 7% in a day. Previously, the limit was 5% for either side.

Topline Securities CEO Mohammad Sohail explained, "Brokers have to settle their exposures against their purchases."

Despite the drubbing, the KSE-100 index staged a healthy comeback by gaining nearly 1,100 points as investors cherry-picked stocks at attractive valuations.

At close, the benchmark KSE-100 index recorded a decrease of 1,160.72 points, or 3.04%, to settle at 37,058.95.

The plunge was triggered by a 33% crash in global crude oil prices after, according to Reuters, Saudi Arabia launched a price war with Russia, sending investors, already worried by the coronavirus, fleeing for the safety of bonds and Japanese yen.

Resultantly, oil stocks hit their lower circuit breakers, with Oil and Gas Development Company (OGDC) and Pakistan Petroleum Limited (PPL) recording offers of 16 million and 13 million respectively.

A similar situation was observed in the oil and gas marketing companies.

Arif Habib Limited (AHL) Head of Research Samiullah Tariq told The Express Tribune that the decline in oil prices and regional indices sparked panic among investors who offloaded stocks, which toppled the market.

Echoing similar sentiments, AHL Head of Equity Sales Saad bin Ahmed said, "The oil market is facing a rout. Local investors panicked due to the crashing oil prices. Since they are unable to sell oil stocks, they are selling what they can - cement and steel - to generate liquidity and manage margin calls."

Topline Securities Director Research Syed Atif Zafar also blamed the collapse of global oil prices for the PSX's sharp decline.

"This development caused panic selling across the board at the PSX, led by oil stocks," Zafar said, adding that the PSX saw a steep fall following sell-off at throwaway prices to get rid of shares bought with borrowed money.

The investors who opted to hold shares instead of selling were required to submit additional cash with their stockbrokers to cover the risk factor against the borrowed money, he added.

Largely, at the front of all the turmoil was the continued rise in coronavirus cases outside China, which has disrupted global supply chains and amplified fears of looming recession.

With the equity and commodity markets reeling from the impact of coronavirus infections that are nearing 110,000, the Pakistan stock market could not escape unscathed as it has lost around 8.3% since February 3.

Foreign investors have been steadily pulling out of the market as they have offloaded stocks worth over $74 million since the past month.

Analysts are of the view that even if the virus-affected global economy manages to rebound by the end of current year or the beginning of next year, foreign investors are expected to remain net sellers of shares at the local bourse for several months or even a year.

Commenting on how these developments affected an individual not directly related to the stock market, Tariq said, "Savings are invested in the stock market via mutual funds," adding that a higher valuation of stocks encouraged capital formation, which provided jobs.

According to a JS Research report, "Major movers for the day were HBL (-7%), UBL (-7%), OGDC (-7%), PPL (-7%) and Engro (-4.3%), which drove the market into the negative zone.

"On the other hand, cement stocks brought the recovery as DG Khan Cement (+7%), Maple Leaf Cement (+7%), Cherat Cement (+7%), Fauji Cement (+6.9%), Pioneer Cement (+7%) and Lucky Cement (+6.9%) all closed at their respective upper circuits."

Overall, trading volumes increased to 308 million shares compared with Friday's tally of 244.5 million. The value of shares traded during the day was Rs11.5 billion.

Shares of 360 companies were traded. At the end of the day, 125 stocks closed higher, 218 declined and 17 remained unchanged.

Fauji Cement was the volume leader with 30.7 million shares, gaining Rs1.21 to close at Rs18.69. It was followed by The Bank of Punjab with 23 million shares, losing Rs0.79 to close at Rs10.72 and Maple Leaf Cement with 22.5 million shares, gaining Rs1.96 to close at Rs29.98.

Foreign institutional investors were net sellers of Rs177.5 million worth of shares during the trading session, according to data compiled by the National Clearing Company of Pakistan. (With additional input by Salman Siddiqui)