As the world is still in grip of coronavirus fever, the stock markets all around the world are in the baffling state. When we talk about Pakistan Stock market, we don’t see a similar trend here.
There is no doubt that went down considerably but the situation is better than many markets around the world. Having said that, there is no doubt that signs of uncertainty in investors are showing.
On 30th January 2020, the KSE 100 index was around 40,000 points mark and today while writing this post, it is at 27,000 points. This is a huge difference in just span of two months.
Many people believe that the coronavirus factor is the main factor of this downward trend but then why we see market sometimes recovering?
In my opinion, there are two more factors which have made the investors, especially the local investors to sell their shares.
Also Read: Property Market Situation in Pakistan
Firstly, the Central Bank of Pakistan (State Bank) was keeping the interest rates higher for longer than it was needed. At the rate of 13.25%, to set up a new business or expanding the business was impossible.
After bashing from local businessmen and Pakistan renowned economists, state bank revised the interest rate to 12.75% initially and this was at the time when coronavirus has started impacting Pakistan.
This was again a strange move when
it was forecasted by other markets in the work that there will be squeeze in overall
The cut was taken as a practical joke by investors and businessmen and the decision was harshly criticized by all business community including those who are the supporter of the current government.
PM Imran Khan intervened in this matter and there was policy related meeting with relevant stockholders. The governor of state bank was briefed with the current situation and was advised to revisit his decision based on the impact due to the pandemic.
Finally, the state bank revised the rates to 11%, although in my opinion, it is still high. Considering the economic situation around the globe, the interest should have been revised to a single digit.
The main reason for that is inflation was on a downward trend and further helped by the reduction in oil prices that have gone down to almost 50% which will further reflect in inflation numbers in coming days. So in my opinion, the State bank had more room to cut the interest rate further to 1-2%
The second factor, which is related to pandemic impact around the world, the foreign investors had started heavy selling. The panic is mostly due to global impact because coronavirus arrived late in Pakistan as compared to other countries in the world.
The PSX and KSE are not performing badly if you compare them with other markets in the world. The impact is due to uncertainty and as soon as the market feels the pandemic effect is reducing, it will rise sharply. We also need to keep an eye on the US dollar as it has risen sharply since 12th march. Currently, it is trading PKR 165.475