A net inflow of $34 million of foreign investors' portfolio investment was witnessed at the local equity market during the 12 trading sessions in August in spite of dwindling volume and panic-like selling by locals, analysts said. "One thing which came out as a surprise in time of crisis in Pakistan led by ferocious floods is the continuous foreign buying in our local stock market", Farhan Mahmood, senior analyst at Topline Securities said.
"Foreigners who are net buyers in Pakistan market for last 15 months in a row, have bought shares worth $53 million and sold $19 million with net buying $34 million during 12 trading sessions in August in spite on dwindling volumes and panic like selling by locals due to fear of huge economic cost and likely impact on profits", he added.
On the flip side, local investors remained aggressive net sellers due to the floods related damages as market so far in August is down 8 percent. Farhan said that the liquidity crunch and rising interest rate forced local investors to shift their funds from equities to better yielding fixed income instruments. The 6-month T-bill was yielding 12.5 percent while 10 year government bond was at 13.6 percent with better rated corporate bonds between 14-17 percent.
He said despite record foreign buying in 2010, the KSE-100 index could register a gain of only 3 percent. "So far in 2010, foreigners bought shares worth $796 million and sold shares valuing $447 million, thus resulting in all time high net buying of $349 million. This compares favourably with net buying of $24 million in 2009 and net selling of $474 million in 2008.
However, the overall index managed to post only 3 percent return (negative 1.4 percent excluding OGDC) so far in 2010. Low interest rate globally has forced foreign fund managers to invest in emerging and frontier markets. Thus, it is not Pakistan-specific. For instance, in India net foreign buying has reached $11.9 billion so far in 2010 while benchmark Sensex is up only 3 percent.
According to State Bank of Pakistan statistics, foreigners hold shares valuing $2.4 billion as of August 6, 2010. The current holding is 7 percent of the market cap. But in relation to free float it is at 26 percent. Their peak holding was $5.1 billion (27 percent of free float) in April 2008 and lowest was $1 billion (17 percent of free float) in March 2009.
Out of $350 million net foreign buying during 2010 to date, more than $100 million, according to estimates, has been invested in Pakistan's largest explorer OGDC. And according to estimates their top holding would be in OGDC having 30-35 percent share in $2.3 billion followed by MCB (10-15 percent) and PPL (10-12 percent), he added.
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