Stock market witnesses decline: Investor confidence plummets amidst political turmoil

The trading floor of the Pakistan Stock Exchange (PSX) buzzed with worried whispers today as traders witnessed a slump in the KSE-100. A drop of 177.93 points (or 0.22 per cent) in the Karachi Stock Exchange – KSE-100 – reflected the bearish sentiments gripping investors, causing them to prefer selling their shares over holding them.

Meanwhile, the secondary benchmark for the PSX, the All Share Index (ALLSHR), fared even worse. It dropped by 163.78 points, equivalent to an alarming 0.32 per cent drop.

What’s especially worrying is the dip in the KSE-30. This index, which monitors the performance of the shares of the largest and most traded companies, witnessed a decline of 0.13 per cent.

Moreover, the day spelt bad news for individuals who had invested in KMI30 (Meezan index), as it experienced a sharp plummet of 543.59 points, which translates into a 0.44 percent drop.

Local companies, such as PIA holding company B, saw a massive share value decrease of PKR 67.29, translating into an ugly 7.28 per cent decrease in share value. Some companies, such as Siemens Pak and Shell, however, stayed in the green.

Could this result in a diversion of investments from local to multinational companies?

What is certain, though, is that the drop in these indexes and the fall in prices of local companies reflect falling investor confidence in the local economy. This can safely be attributed to the recent political instability, with KPK’s Chief Minister Ali Amin Gandapur calling for a revolution and stating that they will adopt a “bullet for bullet” modus operandi.

If this bearish trend persists, the hysteria could spread overseas to foreign investors with vested interests in the PSX, thus triggering panic selling. This can be detrimental as, according to the PSX financial highlights, 14.49 per cent of all outstanding shares are currently held by foreign investors.

Companies will surely look towards the SBP (State Bank of Pakistan) to lower interest rates. The new rates would enable companies to raise capital by incurring debt instead of giving up equity to shareholders.

While this is a good answer to curbing the PSX’s decline by encouraging greater investment levels supported by borrowing, the question now arises: Will this be the answer for the SBP, too?