Global rout: Pakistan’s local participation component is likely to help avert wider selloff

Fear of the US falling into recession after weak economic data last week triggered panic across global markets with the KSE-100 – the benchmark index for Pakistan’s stock market – also feeling the heat on Monday.

The KSE-100 fell 1.46%, the most in two weeks, and analysts could not help but blame the wider anxiety for the selloff.

The panic in Pakistan was also followed by another round of Wall Street’s slump later in the day as the weak jobs report and shrinking manufacturing activity along with dismal forecasts from big US tech companies pushed US stock market indices into a correction, stated a Reuters report.

However, analysts said Pakistan stocks will be more immune to the wider selloff than some of its regional peers due to the heavier balance of local participation.

“Some affect may be seen (at PSX) amid fall in global markets,” Mohammed Sohail, CEO at brokerage house Topline Securities, told Business Recorder on Monday.

“However, a major impact is unlikely as local investors remain key players and they are looking for value deals with economic stability and falling interest rates.”

Sohail’s remarks come after the State Bank of Pakistan (SBP) – under criticism for a heavier hand on reducing the key policy rate after it only made way for a 100bps cut in its latest monetary policy announcement – is likely to take a softer stance after July’s inflation reading came below official expectations.

Together with Fitch Ratings’ upgrade of Pakistan’s long-term issuer default rating and an International Monetary Fund (IMF) bailout around the corner, many still see the country’s stocks holding ground despite the recent rally.

Mattias Martinsson, Chief Investment Officer and founding partner of Swedish mutual fund Tundra Fonder, said days of global crashes make everyone nervous.

“Short term sharp down moves in US markets tend to impact all markets,” Martinsson told Business Recorder.

“We tend to see a certain spillover to the smaller emerging/frontier markets.

“But zoom out, and one can conclude that small EMs and FM markets have underperformed for a number of years, and foreign participation is limited.

“In addition the sharp fall in bond yields globally will help a bit as well. Beyond the fall, markets like Pakistan should continue to behave based on their own concerns and opportunities, as they have done in recent years.”