The Pakistan Stock Exchange has been in free fall over the past two weeks because of coronavirus fears. Cities in Pakistan are under complete lockdowns and Army has been deployed across Pakistan to help civil admin fight COVID-19.
KSE-100 fell down by -1826 or 5.96% on Tuesday just after opening over the impact arising out from the lockdown in Pakistan. Trading was halted for two hours after SECP made changes to the rules. SECP has advised PSX to extend the duration of market halt from 45 minutes to 120 minutes for a period of 15 days from today, March 24.
Samiullah Tariq, Head of Research at Arif Habib Ltd said that market is down due to impact arising out of lockdown in Pakistan as well as other countries in the world, especially major countries in the world like US.
A.A.H Soomro, managing director at Khadim Ali Shah Bukhari Securities said:
This was expected. The fear of market closure, spike in cases and lockdown’s contraction in the economy is creating a massive selling spiral. Buyers are in no rush. He emphasized that foreigners would scramble to generate liquidity and so would Mutual Funds to generate cash for prospective redemptions.
He noted that stocks are a depiction of economic activity. “The economy has virtually come to a halt as stocks ought to reflect that. Sometimes in an overreacting fashion as happening these days,” he added.
Adnan Sami Sheikh, a senior market analyst stated that the market is in free fall. He added that it is hard to say in the short term, but he expects market to keep crashing.
Government Intervention Will Help the Market to Stabilize
Soomro highlighted that in the next coming weeks, we will need to see a flattening of the curve in infection rates. He further stated that State Bank would have to give a comprehensive package to assure businesses of their survival. This needs to come.
“The market is in a free fall for a few days also. But buyers do and will return at government intervention.”
According to the reports, around 125 stockbrokers out of total 206 have demanded market closure.
Baqar Jafri, Economist & CEO, Investors Lounge while talking with ProPakistan, stated:
If any government intervention to provide liquidity is activated either through a fund or other supplementary measures, market is expected to stabilize between 25000 to 28000.
Otherwise, the market might plunge to 22000 levels amid poor federal government management of pandemic and lack of market stabilization measures by key regulators.
Good Opportunity to Invest?
However, Jafri highlighted that for long term investors and young professionals, this will be a lifetime opportunity to build equity portfolios right at the start of a primary bull cycle.
Should the Market be Completely Shut Down?
Some brokers are of the view that the market should not be completely shut down the markets as it’s not the correct way to stop the slide. A broker from Lahore highlighted that at the moment, there is a lockdown in almost all parts of the world, but major markets are still open.
According to a report published in Financial Times, it was emphasized that governments should focus on public health first and their fiscal response second. These will do more to help stabilise markets than shutting them.
Though central banks have used most of their ammunition, finance ministers will now need to use government balance sheets to make the recession as shallow as possible, whether that’s through providing credit to struggling businesses or welfare spending to workers.
The article highlighted that closing markets now would heighten the risk of a meltdown once they reopen, should the economic shocks continue during the shutdown. As long as they stay open, they send a powerful message that more action is needed.
Central banks alone cannot hope to solve the challenge posed by a pandemic. Governments must act fast and not dodge their responsibilities.