KSE plunges on high yields, huge trade deficit

Benchmark index drops over 2,100 points; dollar traded at RsRs176.65

KARACHI:

The Pakistan Stock Exchange on Thursday suffered its worst rout in months as the benchmark KSE-100 index dropped more than 2,100 points.

A huge trade deficit in November weighed heavily on the investors’ sentiments and shook their confidence. On the other hand, a spike in yields of T-bills renewed fears of a steep hike in the benchmark interest rate this month and aided selloff on the bourse.

The market expects the import number for the past month to arrive at an all-time high of around $8 billion which would widen the ballooning current account deficit.

A surge in yields of T-bills on Wednesday’s auction signalled further monetary tightening by the State Bank of Pakistan in the forthcoming monetary policy announcement on December 14, 2021.

The two factors jointly hammered the bourse and sparked profit booking from investors who rushed to safeguard their positions. Resultantly, the stock market witnessed the largest single-day decline.

Moreover, the rupee failed to take a breather and sank to a new all-time low value against the US dollar, soaring to Rs176.65 in the interbank market during intraday trading.

According to the Forex Association of Pakistan (FAP), the dollar appreciated by Rs1.35 against the rupee at around 2:15 pm to reach a new high in the interbank market against the backdrop of a steep rise in Pakistan's trade deficit.

Read PSX likely to reach 50,000 by end-2022

The development triggered panic in the market and fears of imported inflation supported bearish trading.

The KSE-100 index plummeted as soon as trading began as weak macroeconomic cues spooked the market participants. Rumour of a historically high trade deficit in November struck the sentiment on the bourse and dampened the spirits of market players. The selloff accelerated towards a close and inflated the losses.

At close, the benchmark KSE-100 index recorded a decrease of 2,134.99 points, or 4.71%, to settle at 43,234.15.

Speaking to The Express Tribune, Arif Habib Limited Head of Research Tahir Abbas stated that the dip was witnessed owing to anticipation of all-time high imports of $8 billion in November.

“This can widen current account deficit to an unsustainable level of $2.3-2.5 billion,” he said. “Besides, there seems to be no respite from the soaring import bill. However, $650 million was spent on vaccine shipments in November which can be curbed going forward.”

He pointed out that the cut-off yield on six-month T-bills spiked to 11.5% on Wednesday’s auction compared to 10.1% in the previous auction which took place before the announcement of monetary policy.

Read more PSX nosedives over 1,900 points in intra-day trading

The increase indicates yet another hike in the benchmark interest rate by the State Bank of Pakistan in the upcoming monetary policy review during mid-December, he said.

According to him, the market experienced the third-largest decline (2,135 points) ever in terms of index points.

Alpha Beta Core CEO Khurram Schehzad stated the stock market witnessed the sharpest fall of the calendar year 2021 on Thursday.

Overall trading volumes rose to 386.7 million shares compared with Wednesday’s tally of 241.1 million. The value of shares traded during the day was Rs14.1 billion.

Shares of 365 companies were traded. At the end of the day, 16 stocks closed higher, 338 declined and 11 remained unchanged.

WorldCall Telecom was the volume leader with 33 million shares, losing Rs0.18 to close at Rs2.01. It was followed by Dolmen City with 23.6 million shares, losing Rs0.3 to close at Rs11.7 and Byco Petroleum with 22.8 million shares, losing Rs0.61 to close at Rs5.95.

Foreign institutional investors were net sellers of Rs268.4 million worth of shares during the trading session, according to data compiled by the National Clearing Company of Pakistan.