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KARACHI: Stocks at the Karachi share market got off to a storming start on Thursday and at one point propelled the KSE-30 index to above the 10,000 level. As the market closed one per cent up, traders took the bullish fervour in stride for they have been watching both local and foreign institutional investors go wild on the Pakistani stocks since the start of the fiscal year.
Equity values have already soared by a staggering 75 per cent since they hit the pit in the days following the removal of the ‘floor’ — preventing exit from the market — on Dec 15. Numbers released by both the State Bank of Pakistan and the National Clearing Company of Pakistan on Thursday showed that offshore investors had gradually accumulated almost 20 per cent of the free float.
In just the last three weeks, the KSE has gained 12 per cent mainly on the back of buying by Foreign Institutional Investors (FIIs).
‘During this period, net buying by foreigners amounted to $139 million which has sent the offshore investment in Pakistani stocks scurrying to $1.7 billion,’ says Mohammad Sohail, chief executive at brokerage firm Topline Securities Pakistan.
According to SBP data, the inflow of portfolio investment in the first two months (July-Aug) of the current fiscal year stood at the tall order of $61 million. By contrast, the corresponding two months last year had witnessed outflow of $176 million. The increasing role of foreign investors, with their share in aggregate volume now reaching 11 per cent which was equivalent to a quarter of the actual settlement at the bourse, was thought to be empowering overseas investors to influence the direction of the market.
Brokers sitting on the fence still scared stiff of the 2008 crash wonder what makes the investors — both local and foreign — flock back to the country’s equity markets? But those who entered the market early have gone to make huge gains. They cite some of the reasons for international fund managers’ re-look at the Pakistani equities to be steep discount of 51 per cent at which the KSE was trading compared to the regional markets, easing of macro headwinds and resilience of corporate earnings to domestic and external shocks.
Moreover, the foreign investors had taken heart by the effective steps to uproot the Taliban insurgency with the nation behind the army. That had reduced country risk in the eyes of overseas fund managers. The confidence was fortified by the up-tick on economy by international credit rating agencies, Standard & Poor’s and Moody’s.
Haji Ghani Haji Usman, member on the KSE board, observed that realising that blue chip Pakistani stocks had plunged to dirt cheap prices in the crash of 2008, foreign funds were not willing to pass up the opportunity of value buying. The foreigners’ appetite for local equity was also said to stem from the high yield of 8.4 per cent and low trading multiples of 8 times the forward earnings, which compared well with low yields and almost twice the valuations of regional markets.
Going forward, many market participants thought that better external flows; built up of country’s buffer reserves and improvement in economic indications were likely to keep investors’ interest alive in Pakistani stocks. One analyst recalled that in the financial year ended on June 30, the KSE had produced a negative return of 11 per cent, which represented a screeching halt to the six-year-long bull run. In the six years before, from FY02 to FY07, the bourse had given out a fabulous average annual return of 48 per cent. ‘If the bulls manage to hold sway at the market for another four months, 2009 could stand out as one of the best in recent past,’ said an enthused market participant. Link...