KARACHI: Foreign portfolio investment in the Karachi Stock Exchange reached its highest level since July 2008, according to JS Global Capital.
“Foreign investors ... now hold equities worth $2.3 billion, which constitutes 6.6% of total market capitalisation,” said Syed Atif Zafar, analyst at JS Global in a note issued to clients on Tuesday. The total market capitalisation of the KSE, or the total value of all stocks listed on the exchange, was equal to $35.6 billion as of the close of trading on Tuesday. The free float market cap, or the total value of shares actually available for trading (i.e. not held by the original owners) was equal to $8.7 billion.
Foreign investors’ share of the free-float market cap, considered by many analysts to be a more accurate measure of market liquidity, now stands at 26.5%. Since the beginning of 2010, foreign investors have bought a net total of $224 million worth of Pakistani equities, one of the biggest demonstrations of interest in recent years. Foreign investors have been skittish about investing in the Karachi Stock Exchange since the KSE management imposed a “floor” on stock prices on August 28 2008, essentially bringing trading to a grinding halt.
Soon afterwards, and mostly as a result of that decision by KSE’s management, MSCI – one of the leading providers of global stock market indices – removed Pakistan from the MSCI Emerging Markets index, a benchmark against which thousands of institutional investors measure their portfolios. Exclusion from the benchmark meant that Pakistani equities were no longer part of most emerging market investors’ strategies. In May 2009, Pakistan was included in the much less frequently used MSCI Frontier markets index. This caused a marginal increase in investment by overseas investors, but nothing approaching the rally seen over the past four months.
There has been some speculation about Pakistan’s re-inclusion into the MSCI Emerging Markets Index, a decision that will be taken in May. While the market seems mostly pessimistic about that possibility, the run-up in foreign investment may yet prove to be an encouraging sign on the front. There has, however, been some speculation that the money currently being counted as foreign investment is simply Pakistanis moving their money from overseas accounts back into the market, a phenomenon known in the vernacular as kala gora. It is difficult to verify such claims since the National Clearing Corporation of Pakistan (NCCPL) does not keep track of such data.