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Hot money returns to Pakistan stock market
DAWN.COM | Business | Hot money returns to Pakistan stock market
KARACHI: Foreign investors are pushing funds back into Pakistan stocks, setting the market up for its second-best year for inflows in a decade, drawn by cheap valuations and some economic and security improvements.
Such investments may be paying off as well because the main Karachi stock index is one of the few markets in Asia showing a rise since the beginning of the year.
While the benchmark MSCI Asia ex-Japan index is down 11 per cent this year, the KSE is up three per cent.
Pakistan remains one of the cheaper markets in Asia and emerging markets with an improving domestic situation and a stabilising economy, said Mark Mobius, executive chairman at Templeton Asset Management Ltd.
Net foreign portfolio investment into the stock market reached more than $530 million in the first 11 months of 2009-10, compared with a year-earlier outflow of $408 million.
If that holds to the end of the July-June fiscal year, it would mark the biggest net foreign investment in more than 10 years, apart from 2007.
The government has pulled back from the brink of a debt default thanks to International Monetary Fund (IMF) emergency funding and is seeing some success in military operations against Taliban militants behind bomb attacks across the country.
A government led by the party of assassinated former Prime Minister Benazir Bhutto has proven more resilient than critics predicted and recently introduced constitutional reforms to bolster parliamentary rule and stability.
The powerful military, which has ruled for more than half of Pakistans history, is seen as largely satisfied with the civilian government and loathe stepping back into politics while it hands are full battling militancy.
The economy is also pulling out of the global downturn and this year the government expects growth above four per cent compared with record low growth last year of 1.2 per cent.
The Karachi stock market has more than doubled from lows hit last year during the worst of the global crisis, although many stock markets have seen similar gains.
To be sure, Pakistan remains one of Asias riskiest investment destinations, Reuters surveys show.
Thats why most foreign money goes into energy stocks or Fertiliser Company Engro Chemicals. Apart from having cheaper valuations compared with many regional peers, they offer the liquidity foreign investors need should they decide to sell.
Al Qaeda-linked Taliban militants remain a serious threat despite the militarys successes, and chronic power cuts and rising prices are eroding the government's support. There remains criticism of a lack of policy stability.
In addition, the inflow figures have been flattered by the lifting of a KSE trading floor, which had stopped investors selling below 9,144 points between August and December 2008.
Brokerage Invest and Finance Securities Ltd says the lowest one-year forward price-to-earnings ratio in Asia of just 6.25 is also drawing funds. That's less than half China's level, it says.
Of course investors are interested in seeing fewer terrorist attacks, but many investors have become inured to such situations knowing that they are isolated incidents, Mobius said in late May. Foreign direct investors seem less confident.
Actual FDI has almost halved to $1.77 billion in the first 10 months of 2009/10 compared with $3.20 billion a year earlier. Such FDI would be the lowest level since year ending June 30, 2004 when it was $949 million.
FDI is a much longer-term commitment, said Nasim Beg, chief executive at Arif Habib Ltd.
Youre really taking a long-term view and you cant pull the money out if you think things have changed. Asad Iqbal, chief investment officer at Faysal Asset Management Ltd, said that apart from obvious security concerns, FDI is a victim of ever-changing government policies.
He cited export tax on yarn. The government raised it to 15 per cent last month only to reverse the decision in the budget Saturday.
For the country to be able to generate healthy long-term investment, clear policies along with assurances of security are needed, Iqbal said.
DAWN.COM | Business | Hot money returns to Pakistan stock market
KARACHI: Foreign investors are pushing funds back into Pakistan stocks, setting the market up for its second-best year for inflows in a decade, drawn by cheap valuations and some economic and security improvements.
Such investments may be paying off as well because the main Karachi stock index is one of the few markets in Asia showing a rise since the beginning of the year.
While the benchmark MSCI Asia ex-Japan index is down 11 per cent this year, the KSE is up three per cent.
Pakistan remains one of the cheaper markets in Asia and emerging markets with an improving domestic situation and a stabilising economy, said Mark Mobius, executive chairman at Templeton Asset Management Ltd.
Net foreign portfolio investment into the stock market reached more than $530 million in the first 11 months of 2009-10, compared with a year-earlier outflow of $408 million.
If that holds to the end of the July-June fiscal year, it would mark the biggest net foreign investment in more than 10 years, apart from 2007.
The government has pulled back from the brink of a debt default thanks to International Monetary Fund (IMF) emergency funding and is seeing some success in military operations against Taliban militants behind bomb attacks across the country.
A government led by the party of assassinated former Prime Minister Benazir Bhutto has proven more resilient than critics predicted and recently introduced constitutional reforms to bolster parliamentary rule and stability.
The powerful military, which has ruled for more than half of Pakistans history, is seen as largely satisfied with the civilian government and loathe stepping back into politics while it hands are full battling militancy.
The economy is also pulling out of the global downturn and this year the government expects growth above four per cent compared with record low growth last year of 1.2 per cent.
The Karachi stock market has more than doubled from lows hit last year during the worst of the global crisis, although many stock markets have seen similar gains.
To be sure, Pakistan remains one of Asias riskiest investment destinations, Reuters surveys show.
Thats why most foreign money goes into energy stocks or Fertiliser Company Engro Chemicals. Apart from having cheaper valuations compared with many regional peers, they offer the liquidity foreign investors need should they decide to sell.
Al Qaeda-linked Taliban militants remain a serious threat despite the militarys successes, and chronic power cuts and rising prices are eroding the government's support. There remains criticism of a lack of policy stability.
In addition, the inflow figures have been flattered by the lifting of a KSE trading floor, which had stopped investors selling below 9,144 points between August and December 2008.
Brokerage Invest and Finance Securities Ltd says the lowest one-year forward price-to-earnings ratio in Asia of just 6.25 is also drawing funds. That's less than half China's level, it says.
Of course investors are interested in seeing fewer terrorist attacks, but many investors have become inured to such situations knowing that they are isolated incidents, Mobius said in late May. Foreign direct investors seem less confident.
Actual FDI has almost halved to $1.77 billion in the first 10 months of 2009/10 compared with $3.20 billion a year earlier. Such FDI would be the lowest level since year ending June 30, 2004 when it was $949 million.
FDI is a much longer-term commitment, said Nasim Beg, chief executive at Arif Habib Ltd.
Youre really taking a long-term view and you cant pull the money out if you think things have changed. Asad Iqbal, chief investment officer at Faysal Asset Management Ltd, said that apart from obvious security concerns, FDI is a victim of ever-changing government policies.
He cited export tax on yarn. The government raised it to 15 per cent last month only to reverse the decision in the budget Saturday.
For the country to be able to generate healthy long-term investment, clear policies along with assurances of security are needed, Iqbal said.
