KARACHI: The outgoing week witnessed massive fall in the KSE-100 index by 2,159 points (5.65 per cent) representing the worst weekly rout in seven months since August 2019.

The benchmark settled slightly above the 36,000-level at 36,061. Given the bear rampage that pushed investor sentiments at new low, the decline would have been far steeper but for the ‘’trading halt’’ mechanism which came to the rescue on three of the five sessions – Monday, Thursday and Friday.

The regulators had introduced new circuit breaker mechanism in December last year that provided the trading would be called to a halt if the KSE-30 index plunged by a maximum of 4pc and failed to break the bear stranglehold for more than five minutes. Trading restarts after a break of 45 minutes, providing a cooling period during which the panic in the market is replaced by rationale thinking. It also enables the collection of mark-to-market margins as a means to prevent systemic risk.

Mainly the growing fear of the coronavirus which the Worth Health Organisation declared as pandemic for the first time; the US President clamping travel ban on most European countries and the steep fall of 30pc in international oil price after Organisation of Petroleum Exporting Countries and Russia failed to agree upon oil production cut and Saudi Arabia engaged in price war, took their toll on the global financial markets which saw the worst week since the global crisis of 2008.

Market meltdown was witnessed in bourses from Wall Street to Europe and Asia. In the heat of the moment, investors overlooked the enormous benefits to be brought about to the Pakistani economy due to hefty slump in oil prices; greater than expected drop in Inflation numbers for February which signalled a consensus expectations of 100 basis points cut in interest rate in monetary policy statement due on 17th and the increase in foreign exchange reserves held by the SBP for the 23rd consecutive week by $32.4m to $12.790m.On the flip side, local currency depreciated against the dollar, mainly as a result of net foreign selling in government securities.

Foreign equity sell-off continued in the outgoing week clocking in at $23m as outflow was noted in cement at $8.2m and exploration and production $6.2m. On the domestic front, insurance companies mopped up much of the liquidity by fresh purchases of $25.2m and banks bought shares worth $6m.

Average daily volume rose 9pc to 264m shares while mean value traded surged 25pc to $81m. Sector-wise, negative contributions came from commercial banks, declining by 706 points, oil and gas exploration companies 650 points and fertilisers 317 points.

Scrip-wise, major laggards were Pakistan Petroleum, dipping by 262 points, Habib Bank 177 points and Engro Corporation 167 points while positive contributors were led by Searle Company, up 30 points and Indus Motor 20 points.

Going forward, panic over the uncertainty caused by the coronavirus would continue to impact global markets. Gurus at the PSX expect the impact to be significantly lower on the local market as the country has fortunately seen fewer confirmed cases.

Besides, the market had also corrected its overbought situation prior to the outbreak of the virus. Yet, the announcement of monetary policy would have a profound impact on the performance where cut of 100bps or more would help elate earnings of heavily leveraged cement, steel and textile corporates. The standard strategy recommended for investors was to go long in attractively priced blue chips.

Published in Dawn, March 15th, 2020