Kathmandu: Stock market reopened on Monday after remaining closed for five days due to the parliamentary election and public holidays, triggering strong volatility as investors reacted to the political outcome.
On March 3, the benchmark index of Nepal Stock Exchange (NEPSE) had climbed 38.52 points to close at 2,712. When trading resumed on March 9 following the election, the market surged sharply after results indicated that the Rastriya Swatantra Party was headed toward forming a two-thirds majority government.
The rally triggered three successive positive circuit breakers, forcing the market to close before completing the full trading session. By the end of the day, the NEPSE index had jumped 162.93 points to reach 2,875. The following day, however, the market cooled, falling 34.12 points to close at 2,841.
Historically, the day after a positive circuit breaker in Nepal’s stock market has often seen a double-digit decline. There has even been a rare instance when two consecutive days of positive circuit breakers were followed by a negative circuit breaker on the third day, an unusual pattern that occurred during the early phase of the COVID-19 pandemic.
In March 2020, trading on the Nepal Stock Exchange was suspended as the global health crisis spread. The market briefly reopened for two days in April but was shut again under directives from the regulator, the Securities Board of Nepal, which had issued a 14-point guideline covering trading hours, price fluctuation limits, settlement procedures and circuit breaker rules during the pandemic. In those two brief sessions, the index dropped sharply, prompting investors themselves to call for another closure.
The market did not reopen for regular trading until 29 June 2020. On that day the index slipped slightly to 1,138 points, but the following day it surged dramatically, triggering a positive circuit breaker after rising six percent, about 72 points, to 1,260.
The rally continued the next day as the index again hit a six-percent limit, climbing another 76 points to reach 1,336. Investor enthusiasm was high after the market reopened following months of lockdown. Yet the momentum quickly reversed. On the third trading day, heavy profit-taking drove the index down six percent, triggering a negative circuit breaker and closing the market early as the index fell back to 1,256.
The sharp swings were largely driven by a rush of buying after months of closure, combined with falling bank interest rates and the growing popularity of online share trading systems. Despite the strong index movements, trading volumes remained relatively low because buyers significantly outnumbered sellers during the surge. After two days of rapid gains, however, investors rushed to lock in profits, triggering a wave of selling that pushed the market into a negative circuit breaker.
Circuit breakers, temporary trading halts triggered when market indices move sharply up or down, are designed to prevent panic-driven crashes or excessive speculation. Nepal introduced the mechanism in 2017 to help stabilize the market.
Under the system, if the NEPSE index moves by four percent within the first hour of trading, transactions are paused for 20 minutes. A five-percent move in the second hour results in a 40-minute halt, while a six-percent swing during the third hour triggers a suspension of trading for the remainder of the day. Similar safeguards exist globally; the system was widely adopted after the Dow Jones Industrial Average plunged 22.6 percent in a single day during the Black Monday stock market crash in 1987.
Nepal’s stock market has experienced several such halts over the years, both positive and negative, reflecting periods of extreme investor optimism or fear. The latest surge following the election results once again highlights how political developments can quickly influence market sentiment in the country’s relatively small but highly reactive capital market.
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