US-China trade tensions, oil rout hit PSX amid heavy foreign outflows

The equity market's downward spiral deepened on Tuesday as a flare-up in global trade tensions, plummeting oil prices, and massive foreign capital outflows hit investor morale, triggering a hedge-betting selloff that persisted throughout the session.

The Pakistan Stock Exchange’s (PSX) benchmark KSE-100 Index saw a decline of 809.63 points (-0.72%), closing at 111,935.38, after hitting an intraday high of 113,649.07 and a low of 111,828.10 points.

Market analysts attributed the bearish trend to uncertainty over global trade policies and pressure on international equity markets.

Ahsan Mehanti, Managing Director and CEO of Arif Habib Commodities noted that stocks remained bearish on global trade war worries and a rout in global crude oil prices.

“Political noise, rupee instability, and concerns over foreign outflows led to the bearish activity,” he added.

China on Tuesday slapped tariffs on US imports in a swift response to new US duties on Chinese goods, renewing a trade war between the world's top two economies even as President Donald Trump offered reprieves to Mexico and Canada. Analysts fear the trade war could disrupt global trade and impact corporate earnings worldwide.

Adding to investor concerns, Pakistan saw a net outflow of $32.4 million from Treasury bills as of January 24, reflecting declining foreign interest in local bonds amid a significant reduction in interest rates.

The State Bank of Pakistan (SBP) cut its key policy rate by 100 basis points to 12% last week, citing easing inflation. While this move aims to boost economic activity, analysts have warned that falling yields may further deter foreign inflows into Pakistani bonds.

Despite market volatility, Pakistan signed an agreement with the Saudi Fund for Development on Monday, securing a one-year deferral on a $1.2 billion oil payment facility. The Oil Import Financing Facility will allow Pakistan to receive crude oil on deferred payment, helping to ease pressure on external accounts and support foreign exchange reserves.

Pakistan’s Consumer Price Index (CPI) inflation fell sharply to 2.4% year-on-year in January 2025, down from 4.1% in December 2024 and a staggering 28.3% recorded in January 2024. According to data from the Pakistan Bureau of Statistics, this is the lowest inflation reading in over two years.

The continued decline in inflation, which peaked at 37.97% in May 2023, has raised expectations of further monetary easing. However, analysts remain cautious, citing global economic uncertainty, local currency volatility, and external debt obligations.