KARACHI, Sept 30: Net inflow of foreign funds in the country’s stock market during September amounted to $79.7 million, which represents the highest single month portfolio investment by overseas investors in eight months of this calendar year.
According to the data released by the State Bank of Pakistan, net inflow of funds in the stock market stood at a staggering $37.6 million in the last four trading days of September (Sept 25-28).
Foreign portfolio investment in the first three months of the current financial year (July-Sept) amounted to $89.2 million. Analysts thought that since the settlement of trade of the last day’s transactions would be next week, the figure could cross over the $100 million mark early in the first week of October.
So what has rejuvenated the interest of foreigners in the country’s equity markets?
“International fund managers are positive on the Pakistani market, specifically in the banking sector,” says Aqeel Karim Dhedhi (AKD), one of the most known brokers at stock exchanges. He said that some of the foreign fund managers were in talks with local brokerages so as to establish joint ventures for investment in equity market.
Dhedhi said that India and China were already benefiting from huge flow of funds in emerging markets, but Pakistan has now come to be discovered as a new destination, because of its attractive stock valuations and a flourishing economy.
He contended that according to accepted norm, foreign portfolio investment must at least be one-third of the direct foreign investment. “It has just begun to happen in our country”, he says.
Foreign direct and portfolio investment in Pakistan registered a 131 per cent increase in the last fiscal year amounting to $3.87 billion compared to $1.67 billion the year earlier.
Other brokers held similar views.
A stock broker who was part of the team of CDC delegation that held roadshows last month in Dubai and Abu Dhabi to introduce Pakistan’s capital market observed that a number of fund managers and brokerages had shown interest in opening their representative offices in the UAE to facilitate investors to invest in Pakistani stocks.
But it is possible to dismiss a stock broker’s enthusiasm for their livelihood depends on selling optimism. Independent analysts, nonetheless, admit that the holy month of Ramazan has started with good gains for stocks.
Last week, the market saw its third consecutive positive closing with benchmark KSE-100 index up by two per cent to close above 10,500 points mark on weekly basis.
Traders said that heavy buying by offshore funds was witnessed last week in the Oil & Gas Exploration (E&P) sector due to news of new findings. But bulk of the foreign investment went into the banking sector.
Following the acquisition of Union Bank by Standard Chartered, which has become the first multinational bank to be listed on the country’s stock exchange, the market was rife with rumours of a UK’s banking giant in advanced takeover talks with a Middle Eastern bank in Pakistan.
“Last week, commercial banks’ market capitalisation grew by 4.6 per cent, thereby, outperforming the market,” says an analyst.
He mentions that banking sector profitability, which stood at over $1 billion, is at an all-time high and is generated by the enhanced business volume, the rising share of high-yield assets and widening spreads. All of which provides a considerably healthy return on equity of over 26 per cent after tax in the banking sector.
Overall it is the good corporate earnings and dividends; continued drop in long-term interest rates; expectations of economic growth and possible settlement of external and internal political issues that are cited by most market gurus as the reasons that makes market attractive.
But in the last resort, it is an improved coordination between the apex and the frontline regulators; the liquidity; (P/E) multiple of 12.5x; and better yields that are at the back of generating interest in equities of both local and foreign investors.
