KARACHI: The Pakistan Stock Exchange (PSX) briefly halted trading after it recorded the single largest slump in history of over 2,000 points, or 5.8%, in intraday trade on Monday.
Investors dumped shares and ran out of the market as they took cues from plunging global stock markets and the worst slump in international oil prices since the 1991 Gulf war.
At 9:37am, the KSE-100 Index – a benchmark for market performance – was down 2,106.78 points or 5.51 per cent to stand around 36,211.89 points.
At 10:39am, the KSE-100 Index – a benchmark for market performance – was down 2,214.89 points or 5.80% to stand around 36,004.78 points.
According to the new PSX rules, both indices and individual stocks can plunge or spike maximum by 7 per cent in a day. Previously, the limits were capped at 5 per cent either side.
Topline Securities chief executive officer (CEO) Muhammad Sohail said PSX rules stated that if market falls over four per cent, trading is automatically halted.
Arif Habib Limited (AHL) Head of Research Samiullah Tariq said the decline in oil prices and regional indices led the investors to panic and offload stocks which toppled the market.
The continuous rise in cases of the coronavirus across the world stoked fears of further economic damage to the global economy.
Tariq remarked market recovering from the current low during the day seemed unlikely. “Large weighted stocks have touched the floor. Keeping in view new regulations, brokers are required to submit margins during the day. This will force them to sell other shares,” he said. “Consequently the entire market has gone down.”
On the other hand, AHL Head of Equity Sales Saad bin Ahmed said, “As such the oil market is facing rout. The local investors panicked due to the crashing oil prices. Since they aren unable to sell oil stocks, they are selling what they can – cement and steel – to generate liquidity and manage margin calls.”
Topline Securities Director Research Syed Atif Zafar’s analysis was on the same lines as he also blamed global oil prices collapse of 30 per cent causing the PSX to nosedive.
“Stock markets plunged across the world after the international oil prices suffered the largest fall in a day since Gulf war of 1991,” he told The Express Tribune. “This development invited panic sell on across the board at PSX under the lead of oil stocks.”
“PSX saw steep fall following sell-of of stocks at throwaway prices to get rid of shares bought with borrowed money,” he added.
The investors who opted to hold the shares instead of selling are required to submit additional cash with their stockbrokers to cover the risk factor against the borrowed money, he added.
On the international front, Asian shares were set for a pounding on Monday as investors fled to bonds to hedge the economic shock of the coronavirus, and oil plunged more than 20 per cent after Saudi Arabia slashed its official selling price.
The world’s top oil exporter plans to raise its production significantly after the collapse of OPEC’s supply cut agreement with Russia, a grab for market share reminiscent of a drive in 2014 that caused prices to slump around two thirds.
Brent crude futures sank $9.51 to $35.76 a barrel in chaotic trade, while US crude shed $8.81 to $32.47.
The safe-haven yen surged against emerging market currencies with exposure to oil, including the Russian rouble and Mexican peso, as analysts saw danger ahead.
“Today’s price action puts at risk the fiscal health of the vast majority of sovereign producers and budget cuts and increased debt loads are now looming in the event of a prolonged period of low prices,” warned Helima Croft, head of global commodity strategy at RBC Capital Markets.
