Foreign investors enter Pakistan’s stock exchange
Foreign investors enter Pakistan’s stock exchange: 1st June, was to be a historic day as Pakistan regained the emerging market status it lost 9 years ago, but the day became historic for an entirely different reason.
Market followers say an alteration was long overdue, but a drop of over 1,800 points was never likely to occur. Given the anticipation of foreign inflow with Pakistan’s reclassification as MSCI Emerging Market, the single-largest decrease in terms of points came as a shock.
The correction came earlier than expected and panic-induced investors opted to leave.
With the end of the fiscal year approaching, redemptions requests of local funds prompted aggressive selling.
According to data maintained by the National Clearing Company of Pakistan Limited (NCCPL), an inflow of around $450 million made its way quietly into the stock market on Wednesday, a day before the upgrade.
However, foreigners remained net sellers of $81.8 million on the same day when $987 million worth of shares were traded – a volume the PSX was gearing up to tackle for a few months.
Thursday saw a bloodbath at the stock market. Foreigners were net sellers of $16.5 million and local institutions joined in the negative ride as well.
“We believe there can potentially be three reasons for selling by foreign investors,” said JS Global Research’s analyst Syed Atif Zafar in a note to clients. “First is selling by Frontier Market-tracking funds, second is an exit opportunity for funds having heavy positions in Pakistan because of available liquidity on the day and third, selling from active EM funds and proprietary books international broker dealers.”
Active Emerging Market funds are different from passive ones as they do not invest in shares as per their weightage in the EM Index. The PSX, with 33 local companies in the MSCI Pakistan Index, carries a 0.14% weightage among Emerging Markets.
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