Stocks likely to see more wild swings on virus fears

Now that stocks have entered a bear market, more wild volatility is expected in the week ahead as investors await a big stimulus from the government to help minimize coronavirus impact on the already struggling economy.

In the past week, the market was sharply lower but swung wildly in both directions. The market recorded biggest weekly decline after 2008 financial crisis, staging a plunge after 12 years in line with a plagued in the global markets.

Brokerage JS Global in a weekly report said although the word ‘bloodbath’ has been used quite liberally in recent times, in its literal sense, few occasions would justify its true application.

“However, after what has happened during the outgoing week at the local bourse, we wouldn't begrudge anyone for using this adjective to describe events that transpired.”

Pakistan Stock Exchange (PSX) benchmark KSE-100 index plunged by 15 percent or 5,393 points to close at 30,667 levels, the largest percentage decline since the global financial crisis.

And this time, it has been a pandemic that plagued global economies, with Pakistan failing to become an exception.

Average daily volumes for the outgoing week were down by 10 percent to 239 million shares likewise value traded decreased by 33 percent to $55 million.

Panic selling was triggered -- leading to frequent halts along the way -- by any news of surging cases of coronavirus in Pakistan, lockdowns of shops and offices in major cities, and companies deciding to employ a work-from-home formula to encourage self-isolation.

Foreigners offloaded stocks worth of $20 million compared to a net sell of $23 million last week. Major selling was witnessed in commercial banks worth $6 million and cements worth $5 million.

On the local front, buying was reported by insurance companies worth $23.5 million followed by individual investors worth $19.5 million.

Analyst said the market is expected to remain under pressure on account of fast spreading coronavirus and news regarding lockdown of major cities, which will keep the investors sentiment dull.

“On the other hand, foreign selling in both, the equity market and debt securities, may keep the local currency under stress,” an analyst at Arif Habib Corporations said.

However, improvement witnessed on macroeconomic front, with the current account deficit shrinking by 71 percent in the eight months ended FY20 along with decline in international oil prices and lower inflation forecast, should bode well for overall economy in the medium term, he added.

Habib Metro-Financial Service in its report foresees a sizeable drop in inflationary pressures in the days to come as lower oil prices in particular and lower commodity prices in general bode well for Pakistan.

“Moreover, this phenomenon will also help in providing much needed relief to the external account as our import bill is likely to be slashed significantly,” the report said. “These developments pave way for a much larger cut in benchmark rates in the remained of FY20.”

Analysts said the equity markets continue to offer highly alluring valuations amid ridiculously cheap multiples, which warrants for a fresh entry.

“Global financial markets are still in a state of shock and further bouts of volatility cannot be ruled out in the near term,” another analyst said.

Contribution to the downside was led by commercial banks (1,484 points), cements (729 points), oil and gas exploration companies (537 points), power generation and distribution (424 points), and fertilizer (408 points).