Foreign investors pour $141.3 million into bourse in July-Oct this year.
A familiar refrain against the stock market goes like this: “Most indicators show the economy is going down, but the benchmark index is rising nonetheless. What makes investors so upbeat about our stock market anyway?”
A simple explanation of the phenomenon lies in the confidence that foreign investors have in Pakistan’s equity market. “Foreign investors can drag the stock market in any direction,” said an analyst associated with a brokerage house while speaking to The Express Tribune.
The Karachi Stock Exchange (KSE) 100-Share Index jumped 355 points on December 5 mainly because of foreign investors’ interest in index heavyweights in the oil exploration and production sector.
He added that the strategy most foreign institutional investors follow is ‘buy and hold’. “An increasing amount of foreign portfolio investment shows they are optimistic about the long-term prospects of Pakistan’s economy,” he noted.
According to the State Bank of Pakistan (SBP), Pakistan attracted a total foreign portfolio investment of $141.3 million during July-October as opposed to $123 million in the corresponding four-month period in fiscal year 2012-13. This shows a year-on-year growth of 14.8%.
Foreign portfolio investment amounted to $119.5 million in fiscal year 2012-13. It was at its highest level of $1.8 billion in 2006-07.
Out of the total foreign portfolio investment in the four-month period, the highest inflows came from the United States, which amounted to $62.1 million.
Many analysts believe portfolio investment from the United States will continue until the US Federal Reserve tapers its ongoing quantitative easing policy that aims to stimulate the American economy by central bank’s purchase of government bonds and other financial assets worth $85 billion every month.
One of the consequences of the injection of liquidity by the Federal Reserve in the American economy is higher investment in emerging markets, such as Pakistan. Resultantly, stock markets from Brazil to Pakistan are flushing with investments from the US, and the trend is likely to continue until the tapering of the quantitative easing policy.
“I think the US is going to stick to quantitative easing until March at least. It may be scaled back afterwards, but the pace of tapering will likely be slow,” the analyst said, adding foreign portfolio investment is expected to remain high until the end of the current fiscal year.
However, it will be unfair to attribute foreign inflows to US quantitative easing alone, as the Karachi stock market is one of the best performing stock exchanges in the world.
The benchmark index has risen by a phenomenal 50.8% between January 2 and December 6 this year. Similarly, the KSE-100 Index increased 48.5% in fiscal year 2012-13, which made it one of the best performing bourses in the world.
“Strong (corporate) fundamentals and a huge consumer base make the Karachi stock market a destination of choice for foreign investment,” he added.
Published in The Express Tribune, December 9th, 2013.
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@abd: Fed Tapering won't be happening for a long time. they'll come up with another acronym to keep the punch bowl and the music going on...
@Mateen...in the whole world, stock exchange is never the barometer to judge economy. If that was so, than Japnese economy should have been down by 80% from 1989 to 2012...simlarly, US is stucked in recession and its related problem but their stock exchange is going up and up...Stock market is all about speculation these days
In Pakistan rise in Stock Market is NOT the Barometer to judge the economony.
In fact it is the reverse, when it comes from the local investors.
If the Stock Market is up, it means the economy is down and of the economy is up than the local investment is negligible, therefore, the stock market will maintain the same level.
At one hand US issues travel alerts for its citizens and on the other hand US investors are only investing in the Stock Market, (which is just like investing in piece of papers) and not in the real market which should give boom to the local economy.
Way to go !!
In a country where savings rate is a low of 12%, foreigners are shying away from investing in terms of FDI or foreign portfolio investments, there is severe load shedding, the commercial capital of the country has a complete breakdown in law and order, country is on the brink of currency crisis with less than 3 weeks worth of mport and insufficient reserves to assure necessary oil supplies - just what is this investor confidence based on?
Is this hot money? The foreigners might start to sell once the fed begins tapering.