Persistent foreign selling, cautious stance by locals behind equity sell-off: AHL CEO

Shahid Ali Habib, CEO at Arif Habib Limited (AHL), has said that persistent selling by foreign investors, and a cautious stance by locals owing to Pakistan rupee's depreciation against the US dollar are reasons behind the stock market's recent retreat.

Talking to a private TV channel, Habib said that several factors are behind the recent slide in the Pakistan Stock Exchange's (PSX) benchmark KSE-100 Index, which has shed over 11% since its recent high in June.

“I believe the biggest factor is the continuous foreign selling, which has been going on since last year's September,” he said.

Habib said that the magnitude of foreign outflow is also increasing on a monthly basis. “Last month, $45 million in outflows were witnessed, and this month to date foreign corporate outflow has been $29 million, which has raised a lot of concern,” he said.

Pakistan stocks have been on a downward trend as the market capitalisation has dropped from $54 billion to $45 billion, down 17% in the last four months.

Even on Wednesday, the benchmark retreated another 1.51%, edging closer to its lowest value in 2021.

Habib said that foreign selling is due to a change in Pakistan’s status by MSCI from an emerging market to a frontier market. “The market is undergoing through a rebalancing phase, and by November, it will move from emerging to a frontier market, due to which the passive funds of emerging markets are continuously selling.”

Last month, Pakistan was downgraded from its status as an emerging market, a little over four years after it was reclassified from the Frontier Markets (FM) Index by Morgan Stanley Capital International (MSCI).

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Habib informed that the selling has also increased due to changes in the PKR/USD parity, which has also raised concerns regarding the currency.

“PKR has devalued by 12% against USD in a span of five months alone,” said Habib, which is a major concern for the local investors who are evaluating the impact of this ongoing devaluation on inflation, interest rates.

“Its impact would be felt at the micro-level as well because the prices of raw material of our industries would increase, which will impact their margins, and demand will be curtailed, which could taper off growth as well,” said the AHL CEO.

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Habib also highlighted that the commodity prices in the international market have also increased in a span of months. “This will have an inflationary impact, as our import bill would increase, and will also impact our external accounts.

“All these things are putting the local investors on a back foot."