KARACHI: For the first time in the current fiscal year, foreign investments in equities, Market Treasury Bills (MTBs) and the Pakistan Investment Bonds (PIBs) outpaced the outflows in January.

The latest data of the State Bank of Pakistan (SBP) showed that foreign investments in the domestic market increased significantly reversing the trend of higher outflows.

However, the cumulative net flow was negative during the first seven months (July-January) of FY22.

The change in January could be the reflection of high yields on the domestic bonds while equity also offered good returns at the beginning of the new year.

The inflows in equity, MTBs and PIBs were $580.5 million against the outflows of $1,032.4m in 7MFY22, making the cumulative net flow as negative $451.9m.

However, inflows in equity of $42.8m in January were higher than outflows of $19.3m, indicating a positive trend for the equity market.

SBP data shows rise in foreign investment helps reverse trend of higher outflows

The foreign investment in MTBs reached $15.06m in January against zero outflows reflecting the increased attraction for the short-term domestic bonds. Before Covid, the inflows were highly attractive for foreign investment but the Covid damaged the situation.

However, with the 6.25pc cut in the interest rate by the SBP within three months after the emergence of Covid in March 2020, the returns on MTBs also dropped significantly. The low rate of return and the pandemic-related uncertainty discouraged foreign investors as a result the country witnessed an outflow of over $3bn.

However, in the second quarter of FY22, the central bank started lifting up the interest rate by 250 basis points to 9.75 while the yields on the MTBs also rose significantly.

The latest auction held on Jan 26 witnessed the cut-off yields on three-month T-bills rose to 10.29pc, on 6-month 10.69pc and 12-month to 10.92pc.

Bankers believe that the increasing cut-off yields would attract more foreign investment in the coming months saying the zero outflow reflects this situation.

The PIBs also succeeded to attract $7.93m in January against an outflow of $5.99m.

Some experts believe the foreign investors were reluctant to go for long-term bonds due to the Covid uncertainty.

Published in Dawn, February 1st, 2022