Pakistan’s equity market sinks amid economic uncertainty

Pakistan’s equity market dropped 1,335 points, or 3.3 percent, reflecting a bearish trend on Monday, fueled by the country’s economic uncertainty, following a depreciation of the rupee and a hike in interest rates. (AP/photo)
Updated 03 December 2018

Pakistan’s equity market sinks amid economic uncertainty

  • Impacted by 1,335 points with rupee depreciation and interest rate hike cited as main reasons
  • China may extend differed payment facility for imported goods instead of cash - economists

KARACHI: Pakistan’s equity market dropped 1,335 points, or 3.3 percent, reflecting a bearish trend on Monday, fueled by the country’s economic uncertainty, following a depreciation of the rupee and a hike in interest rates, analysts said. 

The Pakistan stock market (PSX) opened at 40,496 points and dropped to 39,011 points during the trading before closing at 39,161 level. “Stocks closed bearish amid higher trades on investor concerns for economic uncertainty,” Ahsan Mehanti, Chief Executive of Arif Habib Corporation, told Arab News. 

He added: “Rumors gripped the investor sentiments at PSX amid intraday volatility in the rupee. An unexpected surge in SBP policy rate by 150 basis points on Friday, weak earnings outlook amid a plunge in the rupee, and concerns for rising foreign outflows played a catalyst in record fall.” 

After a 3.3 percent fall on Monday, Pakistan is now amongst one of the worst performing markets, in terms of US dollar returns, in Asia this year. “During the last 18 months, Pakistan’s market capitalization has dropped from close to $100 billion to $57 billion (less than 20 percent of the GDP)”, Muhammad Sohail, CEO of Topline Securities, told Arab News. 

“Today’s (Monday) fall was triggered by higher than expected interest rate increase, rupee volatility and MSCI rebalancing related selling,” Sohail said. 

Pakistan is grappling with a current account deficit which devalued its currency for the sixth time on Friday by 32 percent since December 2017, even as the central bank raised its key interest rate to 10 percent. 

Faced with a balance of payment issue, Islamabad is desperately looking for avenues to fill an external trade gap amounting to nearly $12 billion. “The government is trying to manage the current account situation,” Dr Ashfaque Hassan Khan, Member Economic Advisory Council, told Arab News on Monday.  

Prior to approaching the International Monetary Fund (IMF), Prime Minister Imran Khan visited Saudi Arabia, the UAE, and China to secure financial support. Saudi Arabia pledged to help with a $6 billion bailout package -- with $3 billion in cash deposits and $3 billion worth of oil on differed payments – out of which the Kingdom recently transferred $1 billion in cash, with the remaining $2 billion to be moved in a couple of months. 

After PM Khan’s successful visit to China, Finance Minister Asad Umar had said at the time that “the country’s balance of payment crisis is over”. 

However, local media reports suggest that Beijing has denied providing hard cash. “Instead of hard cash, Beijing plans to provide multiple forms of bailout packages (to Pakistan) in the shape of phenomenal investments in fresh projects," the local media reported quoting Chinese Consul General Long Dingbin in Lahore.

The Chinese envoy said that the investments will help Pakistan overcome its financial crunch. “China would never leave Pakistan in a lurch and will provide maximum resources to ensure that the latter can strengthen its wavering economy,” Dingbin was quoted as saying.

However, economists believe that China may follow Saudi Arabia’s strategy. “China may extend deferred payment facility on the goods Pakistan imports from China,” Muzzamil Aslam, a senior economist, said.

The existing Sino-Pak trade is mostly in Beijing’s favor as, during the fiscal year 2018, Pakistan exported $1.75 billion worth of goods while China exported $11.47 billion worth of goods to Pakistan. “The deferred payment facility will help cope with the current bilateral imbalances,” Aslam added.

Reacting to the country’s current financial situation, investors at the capital market have called for measures to restore the confidence of participants. “Investors need big confidence-building measures to come back to the market that now trades at price-earning of eight times,” Muhammad Sohail added. 

On Monday, investors' participation regressed drastically with trade volumes falling 39 percent to 164 million, while the traded value declined 73 percent to $47 million.


Oil recoups losses as OPEC, US Fed see robust economy

Updated 14 November 2019

Oil recoups losses as OPEC, US Fed see robust economy

  • US-China trade deal will help remove ‘dark cloud’ over oil, says Barkindo

LONDON: Oil prices reversed early losses on Wednesday after the Organization of the Petroleum Exporting Countries (OPEC) said it saw no signs of global recession and rival US shale oil production could grow by much less than expected in 2020.

Also supporting prices were comments by US Federal Reserve Chair Jerome Powell, who said the US economy would see a “sustained expansion” with the full impact of recent interest rate cuts still to be felt.

Brent crude futures stood roughly flat at around $62 per barrel by 1450 GMT, having fallen by over 1 percent earlier in the day. US West Texas Intermediate crude was at $56 per barrel, up 20 cents or 0.4 percent.

“The baseline outlook remains favorable,” Powell said.

OPEC Secretary-General Mohammad Barkindo said global economic fundamentals remained strong and that he was still confident that the US and China would reach a trade deal.

“It will almost remove that dark cloud that had engulfed the global economy,” Barkindo said, adding it was too early to discuss the output policy of OPEC’s December meeting.

HIGHLIGHT

  • US oil production likely to grow by just 0.3-0.4 million barrels per day next year — or less than half of previous expectations.
  • The prospects for ‘US crude exports had turned bleak after shipping rates jumped last month.’

He also said some US companies were now saying US oil production would grow by just 0.3-0.4 million barrels per day next year — or less than half of previous expectations — reducing the risk of an oil glut next year.

US President Donald Trump said on Tuesday Washington and Beijing were close to finalizing a trade deal, but he fell short of providing a date or venue for the signing ceremony.

“The expectations of an inventory build in the US and uncertainty over the OPEC+ strategy on output cuts and US/China trade deal are weighing on oil prices,” said analysts at ING, including the head of commodity strategy Warren Patterson.

In the US, crude oil inventories were forecast to have risen for a third straight week last week, while refined products inventories likely declined, a preliminary Reuters poll showed on Tuesday.

ANZ analysts said the prospects for US crude exports had turned bleak after shipping rates jumped last month.