KSE witnesses record foreign inflows in 2HFY10

KARACHI: Record foreign inflows of $276 million have helped KSE-100 gain 36 per cent in the fiscal year 2010 and place it among the best performing markets in the region, according to analysts.

Foreign funds net buying was a record $276 million in the second half of the fiscal year 2010 compared with net buying of $24 million in the fiscal year 2009.

The offshore investors’ interest has increased surprisingly at a time when the economy is passing through a fragile recovery phase, according to Topline Securities.

“Though local investors remained bearish on the market due to liquidity crunch amid huge borrowing by the government, it were the foreign flows that saved the market in the outgoing six-month period,” said Topline Securities analyst Farhan Mahmood.

Foreigners hold 7% of market capitalisation

Offshore investors hold shares valuing $2 billion which is seven per cent of the market capitalisation and 25 per cent of the market float.

The top three holdings of foreigners are in Oil and Gas Development Company (OGDC), 30 to 32 per cent share, followed by MCB 12-14 per cent and Pakistan Petroleum Limited 10 to 12 per cent, according to Topline estimates.

High government borrowing at 11 to 13 per cent is crowding out private investment and investors prefer to put their funds in risk-free government papers or high-yielding bank deposits, said Mahmood in his research report. During the last six months, local companies sold shares worth $138 million on net basis whereas local mutual funds sold $80 million worth of shares.

Traded value down

The weakest link for the equities has, however, been the narrowing trade values as the daily average was recorded at $84 million for fiscal year 2010, down from a high of $595 million in fiscal year 2006.

This has largely been due to absence of a widely accepted leverage product in the market and liquidity concerns arising from energy sector circular debt and excessive government borrowing, according to BMA Capital analysts.

Published in The Express Tribune, July 2^nd, 2010.