Yesterday's 3.3% decline at the PSX—which at one point forced a trading halt after falling as much as 7.3%—was by no means warranted. But for a small market like ours, any big move on either side is often meaningless and typically reflects our wild mood swings—hardly noteworthy.
On one hand, an economy like ours stands to benefit from lower commodity prices and the broader trend of global demand destruction. For an energy-deficient, import-based economy sustained by foreign remittances, the decline of markets around the world actually plays in our favor. Any downturn in energy and global markets means lower inflation at home and reduced pressure on public finances—at least for now.
Now that the US market didn’t face a 'Black Monday' as feared—and in fact recovered, even on what appeared to be fake news of a potential negotiation process with Europe—Asian markets have taken heart. Japan is substantially in the green (+5.6%), and the PSX should recover all of yesterday’s losses and potentially do even better.
Secondly, oil prices remain weak and have not rebounded with financial markets—Brent is trading below $65, down nearly $10 in the last six days. This comes despite the US imposing new sanctions on Venezuelan oil and continued tensions in the Middle East, particularly with Iran and the situation in the Red Sea.
Moreover, the availability of stocks at the PSX has shrunk over the last two years, while a higher volume of capital has entered the market chasing fewer opportunities. So far, this appetite has been met by the 'foreign corporate' selling that began in September last year.
Additionally, the substantial decline in interest rates—falling nearly 10 percentage points from their peak—will soon be clearly visible in the bottom lines of PSX-listed companies, boosting corporate profitability in the near future.
The PSX has changed in shape since 2015. Institutional players now dominate the landscape. The wild west-style lone rangers are no more. While some still attempt to recreate that old scenario, the market slips further from their reach with each passing attempt.
Such sudden declines now offer opportunities—both for tactical trading and gradual portfolio building.
So take heart and remain invested.