Economic worries push Pakistan Stock Exchange down by over thousand points

Workers clean a glass facade of the Pakistan Stock Exchange (PSX) building in Islamabad, Pakistan, on December 3, 2018. (REUTERS/Faisal Mahmood)
Updated 07 December 2018
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Economic worries push Pakistan Stock Exchange down by over thousand points

  • Fertilizers, cement and oil sectors showed dismal performance in November 2018, say analysts
  • Prime Minister Imran Khan does not have much of an economic team, contends a former director of PSX

KARACHI: Pakistan’s stock market on Thursday witnessed another volatile trading day amid uncertainty in the country’s economic arena, just a few days after an interest rate hike and rupee devaluation.

The benchmark KSE 100 Index nosedived by 1002 points – or 2.55 percent – and closed at the level of 38301 points amid panic selling triggered by global selloff and weak economic data.

“Panic selling was witnessed at the Pakistan Stock Exchange (PSX) due to investors’ concerns regarding global equity selloff. Apart from that, slump in the global crude oil prices, the ongoing political and economic uncertainty in the country, and dismal data on fertilizers, cement and oil sales for November 2018 played the role of a catalyst in the fall,” Ahsan Mehanti, senior equity analyst, said while talking to Arab News.

Pakistan’s cement sector showed a negative growth of one percent in November 2018, compared to the same month last year. “In November, the cement industry dispatched 3.899 million tons of cement, which was one percent less than 3.941 million tons of cement dispatched during the corresponding month of last year. Total local dispatches in the month fell from 3.593 million tons in November 2017 to 3.337 million tons last month, depicting a decrease of 7.13 percent,” data released by the All Pakistan Cement Manufacturer Association (APCMA) show.

However, exports continued to grow and rose by a whopping 61.33 percent from 0.349 million tons in November 2017 to 0.563 million tons in November 2018,” the data show.

Similarly, the oil sales during the five months of the current fiscal year (5MFY19) slipped to its lowest level in more than a decade by posting 33 percent YoY decline to 7.7 million tons. Furnace Oil (FO) sales declined by 68 percent mainly due to the shift of national energy mix to other alternatives like Regasified Liquefied Natural Gas (RLNG) and Coal.

Pakistan urea sales during November 2018 were down 21 percent. The overall sales in 11 months of current year (11M2018) were recorded at 5.1 million tons, down one percent.

Analysts believe that the current bearish trend in the market is fueled by the macroeconomic jitters arising out of the recent policy initiatives, including rupee devaluation and interest rate hikes, and lack of communication among the economic team.

“Prime Minister Imran Khan has no economic team to the run the country’s economic affairs. Only Razak Dawood is from the business community,” Yaseen Lakhani, senior stockbroker and former director of PSX, claimed while talking to Arab News.

“The government has increased the price of almost everything with the devaluation of rupee,” Lakhani said, adding: “The market is full of rumors and market participants are at the forefront in spreading them.”

Recently, the lack of coordination among the State Bank, Ministry of Finance and the Prime minister’s Office was exposed when PM Khan revealed himself that he found out about the rupee devaluation through media reports.

“Such miscommunication impacts the market. While the major worry for investors is the prevailing macroeconomic uncertainty in the country, such communication gaps exacerbate the situation,” Samiullah Tariq, Head of Research at Arif Habib Limited, told Arab News.

Tariq expects that the market volatility will continue during the next three to four months. “We sense that interest rate around 50 to 100 basis points will increase before the market stability returns,” he added.

The market participants are also nervously looking at the outcome of the recent talks between the government and International Monetary Fund (IMF). The Fund will be sending another delegation to the country next month to continue its conversation with the Pakistani authorities.

“The IMF says that talks with Pakistan are in the initial stages, contrary to the prevailing impression that they are already in the final phase,” Muzzamil Aslam, a senior economist, said.

“Most investors are also concerned that the IMF may opt out of the negotiations” due to Prime Minister Khan’s recent statement instructing the country’s central bank to inform him before changing the policy or exchange rates since it is against its conditions, Aslam added.


Oil prices rise on Libyan export interruption, but markets remain weak

Updated 11 December 2018
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Oil prices rise on Libyan export interruption, but markets remain weak

  • The rise came after crude prices dropped by 3 percent the session before amid ongoing weakness in global stock markets and concerns that slowing oil demand-growth could erode supply cuts
  • Crude futures have lost around a third of their value since early October amid the financial market slump and an emerging oil supply overhang

SINGAPORE: Oil prices edged up on Tuesday after Libya’s National Oil Company declared force majeure on exports from the El Sharara oilfield, which was seized at the weekend by a local militia group.
Despite that, overall sentiment on oil prices remained weak amid worries over global stock markets and doubts that planned supply cuts led by producer club OPEC will be enough to rein in oversupply.
International Brent crude oil futures were at $60.19 per barrel at 0336 GMT, up 19 cents, or 0.3 percent, from their last close.
US West Texas Intermediate (WTI) crude futures were at $51.16 per barrel, up 16 cents, or 0.3 percent.
Libya’s National Oil Company (NOC) late on Monday declared force majeure on exports from the El Sharara oilfield, the country’s biggest, which was seized at the weekend by a militia group.
NOC said the shutdown would result in a production loss of 315,000 barrels per day (bpd), and an additional loss of 73,000 bpd at the El Feel oilfield.
The rise came after crude prices dropped by 3 percent the session before amid ongoing weakness in global stock markets and concerns that slowing oil demand-growth could erode supply cuts announced last week by the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers including Russia.
Crude futures have lost around a third of their value since early October amid the financial market slump and an emerging oil supply overhang.
In a show of no confidence, money managers cut their bullish wagers on crude to the lowest in more than two years in the week ending Dec. 4, the US Commodity Futures Trading Commission (CFTC) said on Monday.
The financial speculator group cut its combined futures and options position in New York and London by 25,619 contracts to 144,775 during the period. That is the lowest level since Sept. 20, 2016.
In physical markets, Kuwait and Iran this week both reduced their January crude oil supply prices to Asia
“There remains a lot of uncertainty if the production cut is thick enough to make a significant dent in global supply,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.
“The general risk-off tone in global markets and the stronger dollar ... are contributing to the selling pressure.”
The OPEC-led group of oil producers last Friday announced a supply cut of 1.2 million barrels per day (bpd) in crude oil supply from January, measured against October 2018 output levels.