Foreign investment - a sad beginning of FY13

Flow of foreign direct investment from developed world to emerging economies has not faltered amidst all the swings the global investment has experienced since the deadly 2008. Even the slowdown in China, the largest emerging economy, might not change the positive outlook for FDI inflows into emerging economies, offset by heavy inflows in Latin America.
Where productivity fall and slowing economy has not stopped foreign investment inflows pouring in the emerging markets, the situation in Pakistan has never been worse.
Lack of institutional framework coupled with political uncertainty and weakening economic development has resulted in what is called poor investor confidence. On an aggregate basis, the net FDI for 1QFY13 stood at 87.2 million dollars, a nosedive of about 67 percent year on year.
With the exception of the oil and gas sector, major outflow of FDI from the telecommunication sector and power sector continued during September 2012.
Thanks to portfolio investment, the decline in foreign private investment was not that dramatic during the quarter ending September 30, FY13. Had it not been for the improvement of the local equity markets, the foreign investment position would have been shoddier.
Though policy initiatives to attract the shying away FDI are trifling, some triggers in the foreseeable future can boost the temporary component, foreign portfolio investment in the country.
Opinion on the performance of the equity markets and foreign portfolio investment through the remaining of FY13 has gathered around the upcoming elections. With renewed hopes, investment sentiments of foreign portfolio investors might just take a leap amid improving Pakistan-India trade relations.
Moreover, following the demutualisation of the stock exchange and international bourses taking up a stake in the local stock exchange, investment in stocks can gain pace.
A recent development in the global financial market though with minuscule chances for Pakistan, can also fuel investment in local stocks: The US fund manager Vanguard has decided to switch six of its funds to FTSE emerging market (EM) index from MSCI equivalent. Pakistan could be amongst the gainers who are either new additions or have higher allocations compared to MSCI equivalent.
To recall, Pakistan is one of the secondary emerging markets in the FTSE EM index with a weight of 0.12 percent and net market capitalisation of around four billion dollars consisting of five companies: PPL, OGDC, NBP, MCB and FFC.