Foreign investment in the Pakistan Stock Exchange (PSX), one of the best performing Asian markets, halved to Rs454 billion in the past four years despite share prices becoming more attractive compared to those in other emerging markets.

The latest pullout of foreign investment may be attributed to the third wave of the Covid-19 pandemic in Pakistan as overseas investors became net sellers in the past 13 consecutive weeks, which ended on Friday, April 16.

Earlier, they continued to exit the market following hefty depreciation of the rupee against the US dollar, low foreign currency reserves and a high inflation reading, all of which put foreign investment at a high risk, said BMA Capital Executive Director Saad Hashmi.

Speaking to The Express Tribune on Friday, he remained optimistic that foreign investors would make a comeback to the local bourse as their primary concerns were addressed with the foreign currency reserves hitting a four-year high at $16 billion. In addition, the rupee recovered to Rs153 against the US dollar and economic activities picked up in recent times, he said.

Foreign investment hit a record high at Rs947 billion in May 2017 compared to Rs454 billion on April 16, 2021, showing that almost half of the foreign investment had been wiped out over the past four years, according to the State Bank of Pakistan (SBP) and National Clearing Company of Pakistan Limited (NCCPL).

In the past 13 weeks alone, investors divested around Rs58 billion from the Pakistan bourse. The aggressive pullout of foreign investment, however, failed to derail the market.

Local institutional and retail investors injected money to buy shares at lucrative prices and the market continued to trade on both sides of the fence even during the Covid-19 pandemic. To recall, the benchmark KSE-100 index hit an all-time high of nearly 53,000 points in May 2017 when foreign investment reached a record high of Rs947 billion.

The index closed near three-year high of 45,306 points on Friday.

Over the past four-year period, it oscillated between 27,000 points on the downside and 47,000 points on the upside.

Hashmi said that inking of the International Monetary Fund (IMF) programme worth $6 billion by Pakistan in May 2019, temporary suspension of the programme amid Covid-19 and its recent resumption weighed on minds of investors, including foreign investors.

More importantly, abrupt changes to the government’s economic team took a toll on foreign investors’ interest.

“We have changed two finance ministers over the past few weeks or since we resumed the IMF programme,” he pointed out. He said that high inflation reading also put equity investment at risk.

“Economic managers have to control inflation to attract foreign investment,” he said. “Inflation is hovering around 9% in the country.”

 He said shares were being offered at 50-60% discount at the PSX compared to other emerging markets like India, Sri Lanka and Bangladesh. The discount level stood at around 30% a couple of years ago.

“This happened because other bourses in emerging markets managed to gain ground compared to the PSX,” he said. “Pakistan’s stock market is one of the best performing markets in Asia.

This is largely due to the proactive and aggressive monetary, fiscal, social and other measures taken by the SBP and the government,” PSX CEO Farrukh Khan said at a gathering earlier this week.