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KARACHI, Jan 6: Foreign investment in the country’s capital market is generally dismissed as of little consequence and an ex-chairman of the Karachi Stock Exchange commented a little while ago that the market would be better off without it.
Such disillusionment stems from the mood swings of a foreign portfolio manager: “The outflow of funds is as quick as its inflow,” says a market guru. But the influence of the off-shore equity investment in the local bourses is growing.Admitting that the foreign funds hold just about 4 per cent of total market capitalization and the share of overseas funds in average daily volume is just about 3.5 per cent, analysts at the JS Capital Market have calculated that approximately 17 per cent of the share represents foreign investment in the float adjusted capitalization.
“Following the issue of MCB and OGDC GDRs in the world markets, the foreigners’ share in free float could now have risen to 20 per cent”, says Mohammad Sohail, director Research and Equity broking at JS Capital Markets.
Pakistan market free float is just about 23.8 per cent, since the government owns almost one -half of the market.
Most multinationals and company sponsors also hold biggest chunk of shares in large frozen blocks.
The share of foreign trading is 12 per cent in the actual delivery taken by investors on a daily basis. That is due to a 30 per cent delivery-based trading at the KSE last year, out of average daily volume, valuing USD524 million.
With record portfolio investment at local bourses witnessed in 2006, besides their rising share in average daily turnover Sohail and his team of analysts at JS Capital Markets identify the quantum of foreign funds to be the most important stock market driver in 2007.
The momentum of offshore funds inflow into Pakistan’s under-valued market is expected to gather further momentum in 2007. But there are the caveats: Global interest rates; Pakistan’s relationship with the outside world; country’s economic conditions and ratings; corporate profits and the year of general elections.
KSE TOP COMPANIES: The KSE is scheduled to hold the Top-25 companies award ceremony on Monday. Awards would be presented for the years 2004 and 2005 by a person described by the KSE in its earlier announcement as “VVIP”. Market is curious about who he might be, for much would rest on the speech of the government’s representative chief guest.
The country’s capital markets have not been in good health lately and for 2006, it even stood among the worst performing markets in the world. The average daily turnover since the start of the New Year has been abysmally low. Market participants blame uncertainties on several fronts. Stock broker, turned banker Arif Habib says: “It will do market good if the government were to speak up its mind on issues, such as the fate of capital gains tax beyond 2007”.
Most brokers, who have seen their income dwindle, due to lacklustre interest of investors in equities ask the government to consider lowering the ‘cost of doing business’.
“There are already too many taxes paid by an investor, including tax on dividend; and the charge of CVT since June 2006 at double the previous years’ rate has over-burdened an investor in equity,” laments a broker.
It has to be seen if the “VVIP” chooses to take off some of that burden or add a straw more on Monday.
But somebody mentioned yesterday that at least for the present it was no longer enviable to be a stock broker. Many were willing to part with their cherished membership card for Rs70 to 80 million. Just a few months ago, the membership card –- owned by 200 brokers at KSE -- was tagged at Rs100 million.
But there will always be cynics and one remarked: “All that means is a little loss in profit for a stock broker!”
