The flow of Foreign International Portfolio Investment (FIPI) in the terrorism-hit Pakistan’s volatile stock market jumped by over 700 percent in the first 10 months of the current fiscal year. This, economic observers believed, was an outcome of “round tripping”. Total net flow of foreign investment in Pakistan, however, sustained the downward trend, as it dipped by 8.6 percent to $1.534 billion in July-April of FY11.
A monthly account of both portfolio and foreign direct investment (FDI) into Pakistan depicted a negative trend as foreign investment under the two heads, respectively, dwindled by 51 and 42.5 percent. Provisional data released by the State Bank of Pakistan revealed that a robust increase of 749.5 percent in the flow of portfolio investment into the country’s equity market was observed. Foreign investors did put in $302 million in the local volatile equity market during July-April.
In comparison, FIPI stood at minus $ 46.5 million last year, which depicts a phenomenal growth of $348.5 million. Economic analysts attributed this upsurge in the foreign portfolio investment to a profitable investment climate for local and international investors despite higher inflation and the alleged “round tripping” by big local investors.
“Pakistan’s stock market has not crashed as badly (in the global meltdown) compared to the rest of the world,” AB Shahid told Pakistan Today.
The analyst said that Pakistan, a country where average corporate profitability was 28 percent, was an attractive and natural choice of investment for profit-conscious investors abroad.
“Like their local counterparts, foreign investors were pocketing handsome returns on their investment in Pakistan,” he said and added that “But no one bothers to raise the question that why the corporate sector’s profitability is going up in the current inflationary environment.”
The analyst agreed that talks of the alleged money laundering at local equity market carried weight. “This is what we (in economic terms) call round tripping.” The senior analyst claimed that local big investors were first smuggling their “black money” abroad and then bringing it back home in the face of portfolio investment. “That’s exactly what money laundering activity is,” A.B Shahid argued. On the other hand, the total inflow of foreign investment to Pakistan during the said 10 months dropped by 8.6 percent. The country had received a net foreign investment of $1.678 billion, up by $ 144.2 million compared with $1.534 billion in the corresponding period last year. During the said period, the FDI dipped to $1.232 billion against $1.724 billion last year, posting a decline of $492.7 million or 28.6 percent. The FIPI skyrocketed by 749.5 percent or $348.5 million to $302 million against minus $46.5 million in July-April of FY10.
A monthly comparison reveals that, during April FY11, the overall foreign investment declined to $193.4 million against $356.9 in the same month of FY10. The FIPI exhibited a slump of $69.5 million and stood at $66.6 million against $136.1 million last year.
Whereas, the FDI slid to $126.8 million, down by $94 million when compared to $220.8 million in the same month last year.
