Index likely to stay in red zone on coronavirus fears

The capital market witnessed the worst week in more than two and a half years, as it slumped by 5.6 percent owing to the coronavirus outbreak across the globe, dealers said, expecting the situation to persist.

Analyst Ahmed Lakhani from JS Global said, “The coronavirus continued to keep a firm grip on local headlines, as the number of reported cases increased in Italy and neighbouring Iran, while a couple of cases were also identified in Pakistan.”

Given the outbreak of the virus hitting more than four dozen countries with no signs of containment in sight, global equities and commodities (such as oil) were quick to witness a rout.

The panicky scenario was naturally not exclusive to Pakistan, with most major regional and global markets receding during the week. “Not in one session did the market close in the green zone, remaining firmly etched in red,” he said.

Pakistan Stock Exchange (PSX) benchmark KSE-100 shares index tanked by 5.6 percent or 2,266 points to close at 37,984 points, depicting the biggest weekly

decline since June 2017 on point-basis.

Average volumes settled at 174 million shares, up by 63 percent while average value traded clocked-in at $48 million, up by 54 percent on week-on-week basis.

Foreign selling continued this week clocking-in at $22.5 million compared to a net sell of $8.6 million last week. Selling was witnessed in commercial banks amounting to $7.6 million and E&P $4.8 million.

On the domestic front, major buying was reported by insurance companies at $25.3 million and banks/DFIs at $7.8 million.

An analyst from Habib Metro-Financial Services said they expect the weakness in the index to continue, primarily due to fears surrounding the spread of coronavirus, which was being overplayed.

“Bargain hunting in index blue-chips is our advised strategy, while we highlight the upcoming inflation data as a key trigger event (as CPI is expected to see a sizeable drop due to prices of food items returning to normalised levels),” he said.

The results season advanced ahead with big names announcing earnings that failed in exciting the un-nerved mood at the market.

Exploration and production giants, Oil and Gas Development Company (OGDC) and Pakistan Petroleum Limited (PPL) both reported lower than expected earnings due to a large uptick in exploration costs and also due to substantial slide in crude oil prices.

“With the extension of global panic over coronavirus and its spillover on markets, currencies and commodities alike, we expect pressure on the benchmark KSE-100 index to sustain,” an analyst from Arif Habib said. “Albeit, topsy-turvy trend of the market on last day of the week suggests that recent correction has opened up valuations and select sectors may come under limelight.”

An analyst from BMA Capital Management said the global sell-off was expected to weigh down on investor sentiments, as expectations of global slowdown gain traction and resonate among domestic investors.

Lower oil prices may pose threats for the heavyweight oil and gas sector, which would likely drag the index down; however, it would be positive for Pakistan’s inflation and trade figures.

Sector-wise negative contributions came from E&P (575 points) led by weakness in international oil prices, commercial banks (531 points), fertilizer (278 points), power generation and distribution (233 points), and oil and gas marketing companies (191 points).

Scrip-wise negative contributions were led by PPL (256 points), OGDC (194 points), Hubco (170 points), Habib Bank Limited (152 points), and Engro (103 points).