Portfolio investments on the rise

$72 million added to local bourses by foreign investors during October.

KARACHI: Foreign portfolio investment in the country during the month of October topped the combined tally for the first three months of the current fiscal year, according to data released by the State Bank of Pakistan on Tuesday.

While portfolio investment totalled $67.7 million between July and September of the current fiscal, $72.3 million were invested during October alone. During the month, foreign direct investment stood at $80.3 million, while total foreign investment was $113.9 million.

The data shows that total foreign investment in the country between July and October this year was recorded at $569 million. This tally is almost 36 per cent or $316 million lower than last year.

The inflow of foreign direct investment (FDI), which totalled $467.7 million, was also down almost 22 per cent during the period when compared with $596.4 million in fiscal 2010.

Private investment showed a similar trend, down almost 65 per cent to $101.3 million in the July-October period from $288.5 million in the previous fiscal.

Foreign investment has shown a declining trend over the past three years which most economic observers have pinned on the precarious security situation, energy crisis and political uncertainty.

Analysts had also predicted that investments into ongoing projects may be delayed due to the recent floods in the country. However, revived interest has been seen in equity markets, which are often seen as the precursors to overall investment sentiment.

“Portfolio investment is increasing but foreign direct investment is static. This means that we are not seeing significant investments in new projects,” commented InvestCap Research Head Khurram Shehzad.

“Investors are not taking long-term bids in the economy and that is attributable to the security situation and economic uncertainty.”

Analysts have asserted that rising remittances have helped partly offset the decline in investments.

Investor rating of the economy issued by Moody’s and Standard & Poor’s have been maintained – a decision welcomed by local equity markets. But experts asserted that long-term investments have to be attracted for sustained growth of the economy. While interest rates in the United States are currently at a record low, the same are very high here.

Despite the vast margin, foreign investors appear to be in no rush to invest in the country.

Country-wise listing of foreign investment released by the central bank also shows that investment from the US and European countries has dropped significantly compared to last year despite the local currency having lost value against the US dollar and the euro.

Total investment from the European Union has dropped 46.7 per cent to $120.1 million in the first four months of fiscal year 2011 compared with $225 million in the same period last year.

Similarly, investment from the US has plunged nearly 40 per cent to just $196.2 million. On the other hand, investment originating from developing economies jumped 200 per cent to $229.5 million in the same period.

Published in The Express Tribune, November 17^th, 2010.