Capital market: foreign investors' participation increases

The foreign investors' participation has significantly increased as every third available share in Pakistan capital market is owned by the offshore funds, analysts said. With local stock market players facing severe liquidity crunch amid rising interest rate, the activities of foreign funds have gained utmost importance in Pakistan, they added.
"In spite of the infamous closure of the Pakistan market for three-and-a-half-months in 2008, the offshore investors still play a key role in the now less-liquid Karachi bourse", Muhammad Sohail, leading analyst and CEO of Topline Securities said. Investors in Pakistan wait anxiously for the release of foreign activity figures by National Clearing Company of Pakistan Limited (NCCPL) after market close and that mainly dictate the sentiments on the following trading day.
"The stock-wise trading and holding by foreigners is not released by NCCPL, however; we have estimated the holdings based on other publicly available information", he said. He said that the foreigners continue to prefer large cap stocks. The top five stocks make up two-third of their total holding of $2.75 billion now (29 percent of free float).
With no big firm being listed at the local bourse in last few years this concentration of foreign holding in selected stocks will continue as most of the funds prefer to invest in companies with decent float in the market, he added.
According to him, every third available share in Pakistan market is owned by foreigners. And out of that foreign holding every third stock they own is OGDC, Pakistan's largest oil and gas explorer. In last one year foreigners holdings in OGDC have jumped from an estimated 400mn shares to more than 500mn shares now. Thus out of 630 million free float shares, approximately 82 percent is owned by investors living abroad and that too is concentrated in a few hands. In 2010 when foreigners net buying was $525 million, net purchase in OGDC alone was estimated to be more than $150 million. That is why OGDC is no more an actively traded stock and its ranking in top stocks has declined from No 1 in 2009 to No 13 in 2011 to date.
After OGDC, foreigners preferred to buy companies selling consumer related goods during last year. Improving rural economy in Pakistan coupled with the ability to pass on inflationary pressure compel offshore investors to accumulate shares in Engro, Unilever and Nestle Pakistan. These three stocks saw huge increase in foreign holdings. Foreigners who had less than 20 million shares in Engro now holds more than 40 million shares as its subsidiary, Engro Foods is posting exceptional growth in its sales besides expansion of urea plant. Similarly in last one year foreigners holding in Unilever has crossed $80 million and in Nestle $20 million.