With thin volumes and absence of any major trigger in the short run, there is a growing concern among the investors of Pakistan stock about the fate of foreign activity amid record selling in emerging markets, analysts said.
"No doubt, foreigners play a key role in Pakistan bourse also. We believe that the market may remain dull due to these concerns. However, we maintain our Index target for 2011", Farhan Mahmood, senior analyst at Topline Securities, said. He added: "We have forecasted Pakistan Index to reach 14,000 (points) by December 2011 in light of rising corporate profits and continuation of foreign flows.".
He said that record outflows have been witnessed in the emerging markets (EM) in last 3 years. As investors shifted funds to developed markets outflows from emerging market equity funds were at their strongest level since 2008 for the week ending February 2, according to EPFR (Emerging Portfolio Funds Research) Global. The investors pulled money out of emerging markets, following anti-government protests and food riots in Egypt, Tunisia, Algeria, Jordan, Yemen and Lebanon. The fund managers which had invested more than $95 billion in emerging markets in 2010 have started to worry about rising interest rate that could trim economic growth of inflation driven emerging economies.
He said that India, Thailand and Indonesia also saw net selling by offshore investors since the beginning of January 2011. Benchmark MSCI EM index (which tracks 21 emerging economies) posted a negative return of 2 percent in 2011YTD (year-to-date). On the other hand, MSCI world index which tracks 24 develop countries, posted a return of 4.6 percent, thus beating MSCI EM index by 6.4 percent.
Among MSCI emerging markets, India stood as the worst performing market after Egypt with MSCI India down 14 percent in 2011YTD led by foreign net selling of $1.3 billion compared to net buyers of $29 billion in 2010. With rising outflows from EM, mix trend is witnessed in regional frontier markets (FM) where net buying is observed in Pakistan and Vietnam whereas net outflow is recorded in Sri Lanka and Abu Dhabi in 2011YTD. MSCI FM is stable so far with nominal gain of 0.4 percent in 2011YTD
With benchmark KSE 100 index up 3 percent in 2011 (MSCI Pakistan index up 3 percent), Pakistan market stood as the best regional frontier market (FM) after Vietnam and Qatar primarily due to handsome foreigners net buying of $68 million in 2011YTD. Among the FM, Bangladesh remained the worst performing market so far in 2011 with MSCI Bangladesh index down 16 percent, whereas Vietnam market has so far posted highest return of 10.5 percent.
Pakistan, that attracted relatively less foreign investment in 2010 due to weak macros and low volumes, would have lesser impact. "We believe that the trend of flows in EM and FM in coming few weeks will set the direction of Pakistan market", he said. Foreigners that trade 6-7 percent of Pakistan market on an average hold 31 percent of market free float ($3.1 billion) and 8 percent of total market capitalisation, he added.