FIPI inflow into equity market increases to $0.5 billion

The inflow of foreign investors portfolio investment (FIPI) at the country's equity market significantly increased to $0.5 billion in the year 2010 as compared to only $24 million came in the country in 2009. The data available here shows that the foreign investors bought shares worth $1.2 billion and sold $0.7 billion during 2010.
"Though local investors remained bearish on the market due to liquidity crunch amid huge borrowing by the government, it was the foreign flows that saved the Pakistan market in the outgoing year", Farhan Mahmood, senior analyst at Topline Securities said.
He said that 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 the year 2010, local companies sold shares worth $168 million on net basis whereas local mutual funds sold $127 million worth of shares.
He said that the offshore funds now hold shares worth $2.9 billion as of December 17, 2010, which is 8 percent of the market cap and 31 percent of free float. At the beginning of 2010, their share in overall market cap was 6 percent and 23 percent of market free float. Their peak holding was $5.1 billion (27 percent of free float) in April 2008 and lowest was $1 billion (17 percent of free float) in March 2009. With no big IPOs in the near future, foreigners share in local bourses will continue to increase, he added.
Farhan said with imposition of capital gain tax, individuals who mostly square their position within a day their average share in December 2010 declined to 45 percent compared to approximately 57 percent in January 2010. However, during this period foreign participation increased to 6 percent as compared to only 3 percent at the beginning of the year.
According to him, the 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 percent discount to regional market on PE multiples against historical average discount of 30 percent will compel offshore investors to focus more on Pakistan than other regional markets for better returns amid new phase of quantitative easing (QE2).
As interest rates are rising in almost all regional economies, foreigners will not discriminate Pakistan where interest rates are relatively high. Moreover with improving volumes at local bourses foreign flows are likely to improve inline with the market depth. During the fourth quarter of 2010 volumes were Rs 4.4 billion ($51 million) a day, up 83 percent from Rs 2.4 billion ($28 million) a day in the third quarter of 2010. As a result of higher volumes net foreign buying increased by more than 24 percent in the last quarter of 2010, he added.