KARACHI: The foreign investor portfolio investment (FIPI) has recorded a net decrease of $56 million during this month, something seen as a potential threat by most major analysts in the country’s equity market.

The outflow during December is in a striking contrast with a $376.04m inflow this year.

Nauman Khan, an investment analyst at Foundation Securities, cautions that foreign sell-off, if materialises (in a big number), could halt the rerating phenomenon that is at the heart of Pakistan’s revival story.

Foreign investors hold nearly 34pc of the free float of the local equity market, with major holding skewed towards blue-chip stocks in the areas of oil and gas, banking, cement, fast-moving consumer goods (FMCG) and fertiliser.

FIPI outflow “can prove to be a drag on these sectors, particularly the oil and gas and banks that have a weight of 21pc and 23pc”, the analyst said. The major selling during this month has been witnessed in oil and gas and chemical sectors.

The phenomenon of portfolio investment outflow, however, is not Pakistan specific. Market watchers fear that because of a sharp plunge of over 45pc in global oil prices since July this year in the wake of slow demand, asset managers may be forced to trim their positions in emerging markets.

Stock strategists believe that weakness in oil demand could create a risk-averse behaviour of the global equity markets.

A cursory glance at the major Asian emerging markets reveals that global fund managers pulled out $1.2 billion till mid-December, in contrast to the investment of $49bn during January-November period.

“Major inflow was witnessed only in India, amounting to $939m as foreigners are buying into the reform process story by the new government,” said Nauman, the analyst.

But market watchers are still hopeful of a turnaround. “Frontier market funds are likely to find Pakistan a much better investment destination compared to other heavyweights in MSCI frontier markets as better economic prospects amid declining interest rates are set to result in multiples rerating theme going forward,” analysts at Taurus Securities said.

Published in Dawn December 21th , 2014