PSX expected to attract around $200m in 2022

KARACHI: The Pakistan equity market is witnessing a rising trend of foreign investment, as the country’s economy is returning to normalcy after some relief from the Covid-19 pandemic.

“The local market is expected to attract net inflow of $150 to $200 million in 2022, as the country make progress with the International Monetary Fund (IMF), with the exploration and production (E&P) and banking sectors as major attraction due to their huge potential,” Yawar at Pear Securities said.

“The political uncertainty in the country is a reluctant factor which may dampened the foreign investors’ confidence in the local market,” he added.

The global and domestic economies began returning to usual as the vaccination drive against the pandemic hit its peaks in the mid to late 2021, and countries around the world started easing the lockdown gradually.

Pakistan’s $6 billion programme with the International Monetary Fund is expected to give a boost to the foreign investors’ confidence coupled with the restart of the economic activities on the global and domestic front.

The foreign portfolio investment in Pakistan was recorded at $22.62 million in January 2022 (calendar year to date), amidst The Resource Group International (TRGI) investing the planned $120 million into its local subsidiary by acquiring its shares from the PSX, helping the bourse to attract notable foreign investment in the first week of 2022.

The imposition of smart lockdown around the world and parts of the country, due to the emergence of new Covid variants, is not having a negative effect on the industries and economic activities for now, and the market is less affected by the Omicron cases, an analyst said.

The local equity market in 2021 witnessed major outflows against the inflows from foreign investors due to the sharp currency devaluation, volatile macro environment.

The outflows from Emerging Markets (EM) after the Pakistan MSCI reclassification, rupee depreciation and below average economic performance were few of the key factors behind the ever declining inflows at the local bourse.

The foreign portfolio investment (FIPI) in Pakistan plummeted to $359.039 million in 2021, compared to $571.49 million FIPI in 2020, as the pandemic hit the country in late 2020. The government imposed various restrictions on economic and socio-economic activities to curb the rising cases.

Arif Habib Commodities managing director Ahsan Mehanti said that even though the market is very appealing as Pakistan has a weight of 1.39 per cent in the MSCI Frontier Market (FM) Index, but the State Bank of Pakistan (SBP) keeps devaluating the local rupee at 10 per cent/annum, which discourages the foreign investors to invest in the local market.

“The market recorded $300 million outflows till December 2021, as the investors recorded losses due to the continuous rupee depreciation. The central bank needs to bring stability to the rupee to attract foreign investment,” he said.

“Attracting foreign investment is not possible without stabilising the local currency given the fact that the investors know that after a year the investors’ portfolio will be halved due to the currency depreciation,” Mehanti added.

Although higher than expected GDP growth and double digit jump in earnings were expected to keep the market sentiment upbeat in 2021.

However, these macroeconomic developments were overshadowed by the persistent pressure on exchange rate coupled with widening trade deficit gap which dampened the foreigner sentiments and resulted in foreign selling overtaking foreign buying.

Major foreign offloading was witnessed in commercial banks ($170 million) given low interest rate scenario, oil and gas exploration companies ($58 million), as the rising quantum of circular debt remained a cause of concern, and fertiliser ($59 million) with end of concessionary gas for fertiliser companies coupled with the MSCI Emerging Market EM selling.

The Pakistan Stock Exchange witnessed foreign inflows amounting $550 million when it last migrated from EM to Frontier Market FM in 2009.

Following that year, the market witnessed a huge foreign buying spree till 2014 amounting to $1.33 billion on a cumulative basis during six years. Keeping in view Pakistan’s recent shift once again to the frontier market, another buying spree is expected by foreigners in the upcoming years.