KSE: Net buying by foreign investors reaches 15-month high

[Naveed Yaseen]

By Tanveer Ahmed

KARACHI: The inflow of foreign funds in the local stock market recorded substantial growth during the week ending on Friday, as the net buying of offshore investors reached to 15-month high level.

During the week, offshore investors bought $25.88 million of shares in the local bourse against the selling of $6.74 million, thus turning the net buying to the tune of $19.146 million.

The one-week’s net buying of foreign investors was even much higher to the net buying in month of July which recorded $12.01 million.

Analysts said that foreign fund managers were taking interest in the local bourse since the start of June, as the valuations were quite attractive. Analysts believed that since the foreign investors are making entry in all regional markets, so local equity market is also benefiting from this phenomenon, which is evident from high portfolio investment. Recent foreign portfolio numbers suggest Pakistan is inching back on international investment map, albeit very gradually. June 2009 was the first month of positive portfolio flows in FY09 (Jul-Jun) and the trend has carried into FY10 based on MTD flows.

While Pakistan’s re-entry into the MSCI in June-09 has helped, recent economic and regulatory developments could help sustain momentum of flows and attract attention towards KSE’s 50-60 percent valuation discount versus regional peers. The KSE has re-launched deliverable future contracts in 18 scrips, the move envisages increase in turnover which should be positive for foreign investors as it facilitates ease of entry and exit.

Continuous underperformance versus the region has widened KSE’s valuation discount to 50-60 percent on P/E basis as compared to a historical discount of 35 percent.

This combined with a highly attractive dividend yield at 8 percent warrants international attention and potentially explains the increase in foreign interest. Foreign fund’s holding is still around $1 billion in the local equity market.

Offshore investors are mostly buying in blue chips to make quick gains and quit the market because they do not want to make long-term investment.

Analysts said market was volatile and such kind of situation was usually ripe for the fund managers to invest because such situation created the good-return situation for the funds. However, other factors were scaring the foreign investors to avail this opportunity, they added. “The values are attractive compared to neighboring markets and if the situation kept on improving, local stock market could attract the sizeable foreign investment”, analysts beleived.

http://www.dailytimes.com.pk/default.asp...2009_pg5_1