Waheed Mahmood
Foreigners hold shares worth $2.9 billion
KARACHI: One thing which was interesting at a time of crisis in Pakistan, led by ferocious floods, is the continuous foreign buying in local stock market. Though local investors remained bearish on the market due to liquidity crunch amid huge borrowing by the government, it was the foreign inflows that saved Pakistani market in the outgoing year.
Compared to the net buying of only $24 million in 2009, foreigners in 2010 bought shares worth $1.2 billion and sold $0.7 billion with net buying of $0.5 billion.
High government borrowing is crowding out private investment in Pakistan and local investors prefer to park their funds in risk free government papers or high yielding bank deposits.
In 2010YTD, local companies sold shares worth $168 million on net basis whereas local mutual funds sold $127 million worth of shares. As per the research analyst of Topline Securities, offshore funds now hold shares worth $2.9 billion as of December 17, 2010 which is 8 per cent of the market capitalisation and 31 per cent of free float. He said at the beginning of 2010, their share in overall market cap was 6 per cent and 23 per cent of market free float. Their peak holding was $5.1 billion (27 per cent of free float) in April 2008 and lowest was $1 billion (17 per cent of free float) in March 2009, he added. With no big IPOs in the near future, foreigners share in local bourses will continue to increase. With imposition of capital gain tax, individuals who mostly square their position within a day, their average share in December 2010 declined to 45 per cent compared to approx 57 per cent in January 2010. However, during this period foreign participation increased to 6 per cent as compared to only 3 per cent at the beginning of the year. Foreign participation in local market will remain robust next year due to ample liquidity in the global markets for high risk emerging and frontier countries. With Pakistan market trading at 50 per cent discount to regional market on PE multiples against historical average discount of 30 per cent will compel offshore investors to focus more on Pakistan than other regional markets for better returns amid new phase of quantitative easing (QE2).
High government borrowing is crowding out private investment in Pakistan and local investors prefer to park their funds in risk free government papers or high yielding bank deposits.
In 2010YTD, local companies sold shares worth $168 million on net basis whereas local mutual funds sold $127 million worth of shares. As per the research analyst of Topline Securities, offshore funds now hold shares worth $2.9 billion as of December 17, 2010 which is 8 per cent of the market capitalisation and 31 per cent of free float. He said at the beginning of 2010, their share in overall market cap was 6 per cent and 23 per cent of market free float. Their peak holding was $5.1 billion (27 per cent of free float) in April 2008 and lowest was $1 billion (17 per cent of free float) in March 2009, he added. With no big IPOs in the near future, foreigners share in local bourses will continue to increase. With imposition of capital gain tax, individuals who mostly square their position within a day, their average share in December 2010 declined to 45 per cent compared to approx 57 per cent in January 2010. However, during this period foreign participation increased to 6 per cent as compared to only 3 per cent at the beginning of the year. Foreign participation in local market will remain robust next year due to ample liquidity in the global markets for high risk emerging and frontier countries. With Pakistan market trading at 50 per cent discount to regional market on PE multiples against historical average discount of 30 per cent will compel offshore investors to focus more on Pakistan than other regional markets for better returns amid new phase of quantitative easing (QE2).
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