Shares lose 435 points on IMF delay, impending rate hike

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Shares at the Pakistan Stock Exchange (PSX) fell on Wednesday, with analysts attributing the downtrend to a delay in signing the staff-level agreement (SLA) with the International Monetary Fund (IMF) for a desperately needed economic bailout, as well as, the impending rate hike.

The benchmark KSE-100 index fell 435.08 points, or 1.07 per cent, to reach 40,075.29 points at 10:49am.

Aba Ali Habib Securities’ Head of Research Salman Naqvi noted that the stock market had also closed in the red yesterday. A number of factors were behind the market’s fall, he said, including the delay in an agreement with the IMF, expectation of a 2pc increase in the policy rate and political uncertainty.

“The primary reason is that the staff-level agreement has not been signed yet and there is no indication it will be done in the next few days. The increase in the policy rate will also be negative for the market.”

Naqvi also pointed out that ratings agency Moody’s on Tuesday cut Pakistan’s sovereign credit rating by two more notches to ‘Caa3’ — the lowest in three decades, saying the country’s increasingly fragile liquidity “significantly raises default risks”.

Besides this, political circumstances were “very tense” and courts were set to announce judgements in a number of cases that would also affect the market, he said.

The analyst said the downtrend in the market would continue until the IMF agreement was signed and political uncertainty subsided.

Topline Securities Senior Manager Equity Mohammad Arbash also agreed with Naqvi’s view saying that a number of factors were affecting the market, including the delays in the IMF deal, expectations of higher inflation, political uncertainty and the downgrade in rating by Moody’s.

“Stocks fell across the board after Moody’s downgraded ratings on local and foreign currency issuer and senior unsecured debt along with senior unsecured MTN programme to Caa3,” commented Arif Habib Corporation Director Ahsan Mehanti.

He added that speculations over preponed SBP policy meeting tomorrow amid a hike in treasury bond yields to a record level last week on surging inflation played a catalyst role in the bearish activity.

Pakistan is in the midst of a severe economic crisis, with its reserves depleting to just over $3 billion, enough to cover only three weeks of imports. In such a situation, the country urgently needs to sign a deal with the IMF that would not only release $1.2bn but also unlock funding from friendly countries and other multilateral lenders.

A well-placed source had earlier told Dawn that Pakistan and IMF will sign the staff-level agreement on Feb 28. However, background discussions with officials reveal the government is finding it increasingly difficult to convince the Fund to release a loan installment.

The IMF has changed interpretations of at least four prior actions ahead of rea­ching a staff-level agreement on the direly needed economic bailout.

Despite this, the authorities anticipate — at least officially — the conclusion of the SLA next week and the materialisation of financing support from friendly nations — some of which took more time than anticipated because of signals from the Fund.