Pakistan to start stock index circuit breaker to calm swings

KARACHI: Pakistan plans to start a circuit breaker at the beginning of next year to help calm volatility after swings in its equity index rose to a two-year high in September, Bloomberg reported on Tuesday.

A move of 4 percent in the KSE-30 Index will trigger a trading halt, Musarat Jabeen, a spokesperson for the Securities and Exchange Commission of Pakistan, said by email. The limit will be raised gradually to 5 percent, she said. Caps on individual stocks will be widened to 7.5 percent in increments of 0.5 percent, from 5 percent at present.

“The strategy is a gradual approach -- baby steps to help digest the entire process,” Sulaiman Mehdi, chairman of the Pakistan Stock Exchange Ltd., said in a separate interview.

Pakistan has not been spared from the volatility hounding emerging markets this year. A gauge of 30-day historical volatility tied to the KSE-30 Index in September jumped to the highest since 2017, data compiled by Bloomberg show.

The benchmark KSE-100 Index itself slid to a near a five-year low in August before rebounding, helped by the nation’s improving economic prospects.

Moody’s Investors Service last week raised the nation’s credit rating outlook to stable from negative. The KSE-100 was little changed on Tuesday.

Pakistani authorities in August 2008 set a floor of 9,144 points for the then Karachi Stock Exchange index following heavy losses in those days. Stocks then skidded 36 percent in a year on political tension and a shaky economy.

Three months later in December 2008, the stocks management ordered to remove the trading floor on instructions from market regulator.

Following the flooring decision, MSCI removed Pakistan from the it Emerging Markets Index. It then said imposition of a floor on share prices caused near total paralysis of market activity.

The stock exchange is also upgrading its trading platform and adding new products to boost liquidity, Mehdi said. UBL Fund Managers Ltd. plans to launch the nation’s first equity exchange-traded fund next month, while Bank Alfalah Ltd. and Faysal Bank Ltd. are planning the first bond ETF offerings, he said.

During his recent visit to China, Mehdi said several hedge funds were keen to invest in Pakistan’s stocks but are constrained by Chinese rules on capital flows.

Mehdi said he plans to ask Pakistan’s government to discuss easing of those capital controls with Chinese authorities. Foreign investors have bought a net $62 million of local equities this year, set for the first annual inflow since 2014.