Bears take control as shares at PSX plunge over 2,300 points

The Pakistan Stock Exchange (PSX) witnessed accelerated selling pressure on Tuesday as the benchmark index shed more than 2,300 points.

According to the PSX website, the bourse stayed flat for 10 minutes after the opening bell. At 10:49am, the market began its gradual slide with the KSE-100 index plunging by 1186.19 points to sink to 64,018.48 from the previous close of 65,204.67.

The index closed at 62,833.03, further dipping by 2371.64 points, down 3.64pc from Monday’s close.

A day earlier, the benchmark of major shares lost 925.35 points after investors resorted to profit-taking. Negative contributions came from stocks in exploration and production, fertiliser and banking sectors.

Raza Jafri, head of equities at Intermarket Securities, said: “With the KSE-100 having arguably demonstrated an election rally in the last few months, earlier than the usual pattern, some pre-poll anxiety may be creeping in now.”

“Positions built on leverage may also be witnessing margin calls, adding to the pressure,” he added.

Margin calls are particularly common in volatile markets where prices may fall very quickly. If the equity in an investor’s account falls below the maintenance margin, a brokerage will issue a “margin call” which forces the investor to either liquidate their position in the stock or add more cash to the account.

Mohammed Sohail, chief executive of Topline Securities, echoed similiar sentiments of “over-bought and highly leveraged position forcing investors to trim their positions”.

He added that the margin call-led selling occurred during a time when “financing rates are usually higher due to year-end”.

Syed Fawad Basir, head of research at Al-Habib Capital Markets, highlighted that redemption in a few mutual funds had continued for a second day in a row — the funds had sold equities worth 2.8 million dollars previously — coupled “with margin calls on leveraged buying”.

“That said, a slightly longer-term view remains intact that correction has been due,” he said.

Basir observed that there was a brief recovery noted in the index possibly due to the news of fresh funds for government-owned power plants. However, that was left in the dust as bears continued their stampede.

Faran Rizvi, head of equity sales at JS Global, attributed the bearish momentum to “heightened geopolitical tensions” which have caused the global oil prices to surge.

A day earlier, global oil prices rose 3pc as mounting attacks by the Iran-aligned Yemeni Houthi militant group on ships in the Red Sea disrupted maritime trade. Oil major BP said it had temporarily paused all transits through the body of water.

“This poses a significant challenge for countries like Pakistan, which heavily rely on oil imports,” Rizvi said.

He further anticipated that the market would “undergo a corrective phase until the end of December, with a crucial support level at 64,500”. Rizvi advised investors to “exercise caution at these levels”.