Outflow of investment from KSE triggers to $574m

KARACHI - The withdrawal of foreign investment triggered further with full pace despite the imposition of price floor in the Pakistani stock market, as the foreign investors ejected $574 million from the equity markets in only three and a half months from July to October 16, amid unprecedented global financial crisis, increasing insecurity in the tribal belt of the country coupled with local economic meltdown.

"Actual foreign disinvestment will be seen after the removal of price floor from Oct 27 onwards, as the price freeze mechanism has cut shorted the exit of foreign investors and ever since the imposition of floor on Aug 27, foreign investors have been putting pressure on the KSE board for its removal," analysts said.

In the first half of October 08, foreign investors have pulled out $29m. While Cumulative inflow in the same period recorded at $25m.  On October 17, the SBP reported that the net flow of the portfolio investment had landed into negative by $231m from July 08 to date, which indicates further erosion of foreign investment. During the period under review the share markets witnessed cumulative inflow of $343m.

Those who closely watch the activities of Pakistani stock market linked this huge out flow with deteriorating law and order situation, economic weaknesses, like dwindling forex reserves, which dipped down $8 billion, devaluation of rupee against US dollar, crossing Rs86 on Friday coupled with the unprecedented financial turmoil in the US, which sent shock waves to all other leading capital markets of the globe.

Analysts added the failing to achieve any breakthrough in a series of meetings held between KSE board and SECP to reassure the confidence of battered investors has sent bad signal to the foreign investment.

In addition to this, fears of foreign investors and local investors mounted following the meetings between both regulators, they realized that government was not in position to pump a single penny in the stock market and all demands of the stock brokers met with refusal. Analysts held a view that the imposition of floor on the market had sent a negative signal to the foreign investors and those who were still trapped in the market, were waiting for lifting of floor from the market to make an exit.

"Our equity market has been incurring huge outflow after the assassination of Benazir Bhutto, while the global market is in the grip of US recession that led a wave of huge withdrawal of foreign investment from regional markets but our equity markets reacted calmly owing to price floor and nominal contribution of the foreign investment in our equity market," analysts said.

Pakistani market has been facing turmoil since last four months that led the market to shed around 40 per cent and many small investors had been washed out from the stock market. While others were facing back to back decline despite the freeze on shares prices. The steep decline in the stock market and economic meltdown has severely hit the confidence of foreign investors, analysts added. A major outflow of portfolio investment had been recorded from the USA, United Kingdom, Switzerland, Singapore, Hong Kong and Australia.

According to the SBP data, the USA investors withdrew $326 million, UK $102m, Switzerland$ 58m, Singapore$20m, Hong Kong $41m, and Australia $14m.