Investment shaved off: Templeton to cut holdings in emerging markets

Energy sector stock prices could be in for a bashing, OGDCL likely to be most impacted.

KARACHI: Franklin Templeton Multi-Asset Strategies is lowering the allocation of its investments to emerging markets from 30 per cent to 25 per cent, reports informed.

The company’s Senior Vice President, Stephen R Lingard said that the switch would take place in the coming “weeks and months”. He added that the allocation of funds to developed markets would be simultaneously increased from 70 per cent to 75 per cent.

According to well informed market sources, foreign investors currently hold about 450 million shares of the total free float of Oil and Gas Development Company Limited (OGDCL) which stands at about 650 million shares. Of these more than 300 million shares are held by Templeton.

“Their (Templeton) most significant holding is in OGDCL, so any selling that they initiate will likely impact that stock the most” asserted BMA, Head of Research, Hammad Aslam.

He added that if the fund does in fact plan on reducing its allocation in the country’s equities, energy sector stock prices could be in for a bashing.

However, expressing skepticism over the deal, he added: “This is one of the biggest funds in the world and it is very unusual for them to announce their future strategy in advance”.

Chief Executive, Arif Habib Investments, Naseem Beg said, “The decision would be a loss for them more than anyone else because local funds have already been suggesting that the stock is overpriced at these levels”.

“The company’s Asia Growth Fund is the arm that mostly invests in Pakistan’s equities” asserted InvestCap, Head of Research, Khurrum Shehzad. He added that in terms of its investments in Pakistan, this fund is predominantly invested in energy stocks.

Shehzad argued that “even if they sell only 2 or 3 per cent of their stake in OGDCL, there would be a significant impact on the benchmark KSE 100-index”. He added that at this point OGDCL is contributing about 1500 points to the index so a sell-off in that stock “could affect the broader market sentiment as well”.

Foreign investors have led the local bourses in terms of investments in recent months. According to data maintained by the National Clearing Company of Pakistan, foreign portfolio investors have made net investments worth more than $526 million in the local equity markets during 2010.

During the same period, the benchmark KSE 100-index gained about 2584 points to end the previous calendar year at 12,022. Local stock analysts fear that some of those gains could be eroded if Templeton’s plan to reduce the proportion of its investments in emerging markets draws funds out of the local exchanges.

Published in The Express Tribune, January 19^th,  2011.