KARACHI, March 22: The United States and United Kingdom have absolute domination on foreign portfolio investment at the equity market of the country as their contribution is over 80 per cent of the total investment. While the contribution of the two allies of Pakistan on “war on terrorism” is a positive sign, market experts fear that any disturbance in political relation with the two countries could easily evaporate the investment and cause instability.
It is not the portfolio investment alone but the direct investment also has a significant contribution of the two countries. Their collective direct investment is more than 32 per cent.
The total portfolio investments till March 20 since July 2005 were $418 million and the US and UK contributed $303 million and $35 million respectively. Their collective investment comes around 81 per cent.
“This is a high degree of dependency on just two countries and it certainly carries uncertainty for the equity market,” said Abid Kaleem, analyst at a brokerage house.
The portfolio investment witnessed high degree of fluctuation during March and mainly on account of outflow of foreign investment by the two countries.
The outflow of US investment was highest among the countries who took out their investment during the month. The outflow of US investment was $61m and that of UK was $18.962 million.
However, the impact on stock market was too big as the market capitalization of about $5 billion flushed out during the month. Market experts believe that the sudden outflow of investment by the two countries was the catalyst for speculative and hyper sensitive equity market.
The inflows of foreign investment build up in January and February but March has been continuously witnessing decline resulting in shake-up of confidence of the investors.
“There has been no problem for the equity market when no foreign investment or meagre foreign investments were present in the equity market. It was stable but the uncertain US investment brings uncertainty,” said Saleem Abbas, an economist.
Most of the US and UK investment entered into oil and banking sectors especially National Bank of Pakistan and witnessed heavy losses during the month. It is easy for market players to identify that foreign investment has started leaving the sectors they chose to invest.
The case of foreign direct investment is slightly different but the two countries have their significant presence. Their collective investment was 32 per cent of the total $1.226 billion foreign direct investments during July-January 2005-06. The US invested $291 million and UK $100.3 million during the period. Saudi Arabia was the second highest investment of $268 million.
The direct investment of the two countries focused towards oil and gas sector. However, experts believe that Pakistan was expecting higher foreign direct investment by the United States especially after the October-earthquake in Kashmir and NWFP. There was hope in Islamabad that the US would invest to help the quake-hit three million homeless and unemployed inhabitants of the area.
Political analysts have started giving signals that the relation with the investing countries like the US might see another change in the days to come and the change might not favour the investment trend in the country.
“If we achieve good economic growth, there would be no impact on our market. It will remain stable even if the foreign investment leaves the country,” said another analyst whose opinion was difficult to digest by many experts.