20000124

KSE may see $150-$225m inflow this year

HARIS ZAMIR

KARACHI: The Karachi Stock Exchange (KSE) is expected to witness a net inflow of $150 million to $225 million in 2000 following complete lifting of curbs on repatriation of foreign portfolio investors' money, but it might put some strain on the reserves of the country, analysts said.

The State Bank of Pakistan, during the last fortnight released all stuck-up portfolio investor remittances under the Special Convertible Rupee Account (SCRA). The central bank further indicated that it would promptly deal with all future requests for foreign exchange under this head and would clear them as they would appear. The bank further gave facility to foreign investors and allowed permission to remit dividends to non-resident shareholders. Analysts believe that one of the main factors in the increase of stock market activity and appreciation in the KSE-100 index by over 200 points was due to the phasing out of capital restrictions. They do not foresee any selling pressure from the foreign fund houses as they have already sold their stakes through unofficial channels in the prolonged bearish spell.

"The decision by the SBP was taken by the market as confidence booster as now major players can enter and exit the market without any repatriation risk", they said. They expect that the market in 2000 might see an inflow of $100 million to $175 million. But, if the government resolves the dispute with the private power producers over tariff charges, the bourses would see an additional $50 to $75 million more.

While a few analysts asserted that the move by the SBP seemed to be a big confidence booster, the decision appeared a bit pre-mature, given the declining foreign exchange reserves in the country.

"With $400 million debt repayments due in respect of private power producers over the next four months and widening trade gap, the reserves of $1.4 billion seem inadequate", the head of research of a foreign brokerage house said.

He believed that the environment in the recent past was very controlled. With the spree of new circulars by the SBP removing all kinds of restrictions on forex remittances, one should expect an immediate strain on the reserves of the country, he said.

However, over a medium-term horizon, the country would eventually get the held up IMF tranche of $280 million and about $125 million from the Asian Development Bank under Capital Market Development Programme. The release of these funds would easily absorb the repatriation of sale proceeds from the foreign fund managers, he added.

Traders and dealers at the stock market were of the opinion that foreign investment would soon park at the bourse as several measures adopted by the government have boosted the confidence. Speculation was on the rise that the SBP would also remove all lengthy procedures in the repatriation of foreign portfolio investors'.

The bank, to lift all restrictions, has set up a committee to recommend procedures for free outflow of foreign portfolio investment. The committee would comprised members from the State Bank of Pakistan, stock market and custodian banks.