KARACHI, Feb 21: American investors poured $49.9 million into Pakistan's stock market in seven months of this fiscal year, which is more than its combined investment here in the last two years.

Pakistan had attracted $15.1 million American investment in fiscal year July-June 2002-03 and $21.4 million in 2003-04.

Net foreign investment into Pakistan's stock market reached an all time high $91.9 million in July-January 2004-05, of which $49.9 million came from the investors based in America, State Bank data show. In July-January 2003-04, Pakistan's stock market had seen a net outflow of $37.9 million instead of any net investment, but investment from America had totalled $9.8 million.

The inflow of $91.9 million foreign investment into the stock market within seven months of this fiscal year is encouraging also in the backdrop of the last fiscal year's net outflow $27.7 million but given the size of the market it is peanuts.

"We are attracting higher foreign investment chiefly due to increasing corporate profitability and planned privatization of such companies as PSO (Pakistan State Oil) and PTCL (Pakistan Telecommunication Company Ltd.)," says Karachi Stock Exchange Chairman Yasin Lakhani. "Improvement in law and order situation is also attracting foreign investors here," he told Dawn.

A former chairman Arif Habib also said that foreign investment in stock market has been on the rise "because of the market's continued good performance and improvement in Pakistan's economic fundamentals."

Mr Habib said that high daily turnover at KSE is also generating increased interest of foreigners into Pakistani stocks. Daily turnover at KSE is around 1.2 per cent of total market capitalization, higher than the international benchmark of 0.4 per cent, he said.

Both Mr Lakhani and Mr Habib said that "better future prospects" are encouraging foreign investors, including those from America, to invest more in Pakistani stocks.

Foreign investment into stock market is coming not only from the US but also from other countries, most notably the UK, the UAE and Switzerland. During July-January 2004-05, investors from these countries together poured in $48.3 million.

Investment from the UAE alone stood at $23.7 million in the first seven months of this fiscal year, up from $5.5 million in a year-ago period. Analysts say actual investment in Pakistani stocks by the UAE-based investors in particular, and form other foreign investors in general may be even higher.

The reason is that part of the money sent home by expatriate Pakistanis through normal course is meant for investment in stocks. Analysts further say that there is enough space for foreign investment into stocks to grow.

"A foreign investment of $91.9 million in seven months is nothing considering the size of the market, which is $33 billion now," says Muhammad Sohail, director of research at Jahangir Siddiqui Capital Market Ltd.

Between July 2004-January 2005, during which period Pakistan received $91.9 million foreign portfolio investment, the market value of the shares listed on KSE went up from Rs1402 billion to Rs1835 billion-an increase of around 31 per cent. The KSE 100-share index rose from 5279 to 6747.

FDI: American investors are not only showing increased interest in Pakistani stocks, but foreign direct investment from the US is also rising. In seven months of this fiscal year, Pakistan attracted $129.2 million FDI from America, the largest investment from a single country during that period.