Bull run at KSE with massive foreign buying

KARACHI: Foreign investors scrambled over each other to buy Pakistani stocks on Monday, registering a record purchase of Rs2 billion, equivalent to $24 million.

That sent the offshore investment in Pakistani stocks soaring to $95 million in August — the highest in any single month for 17 months. The previous one-month best was recorded in Feb 2008, when the foreign funds had purchased $143 million worth of shares. But that was at the height of bull run with KSE index reaching the level of 15,000 points.

Arif Habib, former chairman KSE, says he is scarcely surprised by the foreigners’ appetite for local equity.

‘The KSE offers yield of 8.4 per cent and stocks are trading at the price-to-earnings multiple of 6.3 times,’ he said, adding that when compared to low yields and high valuations of regional markets, the foreigners’ dash for Pakistani stocks made sense.

India, for instance, offers yield of 1.4 per cent; Indonesia 2.6 per cent and China 3.2 per cent. Those markets are expensive in terms of price multiples of 15.6 times for India; 12.8 times Indonesia and 22 times China.

Mr Habib contended that rupee pressure was not of concern to the foreign investors. ‘In the last 10 years, the rupee has depreciated by an average of only 10 per cent a year,’ he said.

Mohammad Sohail, CEO at Topline Securities, observed that the overwhelming concern of foreign funds when entering any market was the safety of their investment. He said that foreign fund managers were comforted by the recent developments including the built-up of country’s buffer reserves to $13 billion following the receipt of funds from IMF; improvement in economic indicators and the up-tick on Pakistan economy by international credit rating agencies, Standards & Poors and Moody’s. S&P upgraded Pakistan’s sovereign rating by one notch to B-, still six levels below investment grade. Foreigners’ share in total volume at KSE remained at healthy nine per cent during August.

Mainly on the back of foreign buying, KSE-100 index rose by 12 per cent during the month and has shot up by 74 per cent since it hit the pit in Jan this year. Haji Ghani Haji Usman, member on the KSE board observed that global equity markets had recovered by an average of 35 per cent and since KSE had a greater fall, it also was showing faster recovery. Realising that blue chip Pakistani stocks were available at dirt cheap prices, foreign funds were not willing to pass up the opportunity, Haji Ghani said.

But compared to what other regional markets have attracted, KSE is only a starter. Mumbai Stock Exchange, for instance, has seen a phenomenal net buying of $8.1bn by foreign investors in first eight months. No firm figures are available to indicate aggregate foreign investment in Pakistani equity market.

But Mr Arif Habib estimates it to be somewhere around $800 million.


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