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Foreign selling absorbed by locals on KSE

RECORDER REPORT

KARACHI: Selling by foreign fund managers worth $25 million in the two months of 2000 did not alarm the local investors as analysts believed that it was merely switching money to more lucrative and scrips guaranteeing return.

The current state of the KSE-100 index denoted that the improvement in the index from 1250 to 2000 points is mainly home grown. Local financial institutions such as banks, DFIs, NBFIs, big and small investors easily absorbed the selling from the foreign financial institutions.

"The locals have absorbed nearly $650-$700 million worth of foreign selling since Pakistan conducted nuclear test in May 1998," a leading analyst said. With revival in textile scrips, cut in lending rates, foreign exchange reserves glued to reasonable level of $1.5 billion and government's effort to put the economy back on track the confidence of local investors have improved a lot, he added.

Statistics showed that foreign fund houses bought 42.808 million shares worth Rs 996 million and sold 31.214 million shares valued at Rs 2.301 billion. The net selling during the two months of 2000 amounted to Rs 1.305 billion or $25 million.

The analysts believed that chart of foreign fund houses showed that they made dis-investment during the two months of 2000, but not a single application has been forwarded for repatriation. They made reallocation of their funds and sold shares, which did not promise good returns. Buying is mostly expected in the companies, which are on the privatisation block.

One significant feature during the month of February was that number of shares sold in the market depicted a fall which indicated that foreign entities sold shares to book profit. The average selling of shares per month was around 30 million shares but in February it was only 7.8 million shares. The prices had reached new heights and attracted selling from foreign fund houses.

The State Bank of Pakistan in December cleared a backlog of $38 million of the foreign fund houses. The bank also assured the foreign investors that in future every request filed by them would be clear on prompt basis, repatriating their earnings made through shares. This measure boosted the confidence and there is no risk as they can enter the market freely.

Analysts expect that foreign fund houses these days are very choosy and limited their spread to handful of scrips. Investment from them is expected in companies belonging to gas, fuel, energy, telecom and some of the chemical and fertilizer sectors.

The government intends to sell shares of gas companies soon. Moreover, plans are underway to sell shares of state run banks-National Bank and Habib Bank Limited through the stocks markets. It is hope that foreign investors will build up their portfolio when the shares of these banks would be offer of sale. The financial health of these companies are sound and might attract fresh foreign investment.

In 1999, the net foreign outflow was Rs 2.211 billion while in 1998 the net investment was Rs 688.5 million while in 1997 it was around Rs 2.551 billion, the highest ever level saw by the stock exchange.