Outflow of foreign investment $56.39 million
With trading volumes dropping to record low, the flight of foreign investment from the local equity market has accumulated to $19 million on Tuesday owing to, what the market sources said, adverse circumstances on the domestic and external front. According to KSE sources, last 25 days of the current month had seen the inflow of foreign investment aggregating to $37.38 million or Rs3214.95 million against far higher outflows of $56.39 million or Rs4849.66 million. These offshore investment figures show that the international investors had pulled out some $19 million or Rs1634.71 million, in rupee terms, from the Karachi Stock Exchange only. “From July 1st to date approximately $19 million have flown out of the market,” said a researcher at KSE.
Foreign investment in red zone of $9.379 million
The central bank data on Special Convertible Rupee Accounts (SCRA) show that on Tuesday net flow of foreign investment at KSE sat in the red zone at $9.379 million with the outflows totaling at $10.282 million against nominal inflows of $0.903 million. The ongoing poor law and order, a Congressional row between the Democrats and Republicans over removing the $14.3 trillion US debt ceiling and the investors’ risk-averse approach are said to be the three major reasons for the flight of foreign investment from the local bourse. A fresh global recession is being widely feared as the American Congress is still at far from developing consensus on increasing the US debt ceiling by $ 2.3 trillion enabling the Obama Administration to avoid a default on its international financial commitments. “Concerns for falling global capital markets and foreign outflow at Pakistan stock exchanges played a catalyst role in negative close at KSE,” viewed Director Arif Habib Investments Ahsan Mehanti.
Investors switching to gold
Another analyst opined that the risk-averse international investors were now switching to other “safe havens” like the gold. “Gold is an attractive choice for the investors now,” he said. Another, and relatively permanent, reason for the foreign investors’ pullout includes the individual investors’ deepening grievances over the unpopular Capital Gains Tax (CGT) and its ill-thought-out regulations which, the small investors claim, were recently amended for the good of influential brokers only. The renewed spate of politically-motivated target killings in the violence-hit metropolis have played havoc with the investors’ confidence for the last couple of weeks with trading volumes at the country’s largest equity market, KSE, depleting to new lows. The trading turnover at the ready-counter was recorded on Tuesday at 54.53 million shares against 32.82 million of the previous day. Moreover, of the total 54.53 million shares, some 18 million belonged to the day’s volume leader NIB Bank which saw its shares’ opening, closing, highest and low rates at the same .01 paisa. “The daily average volumes at KSE have dipped to 40 million (shares),” a small investor told Pakistan Today.
Investors unhappy with Capital Gains Tax
The absence of individual investor is also said to be a major reason for low volumes at Karachi bourse. A source claimed that the small investors were unhappy with the SECP for bringing no relief to them in the recently-amended CGT rules. “The small investors, trading shares to the tune of 3 to 5 hundred thousand rupees, have been served notices to file taxes on their gains,” the source said. Meanwhile, Tuesday witnessed a bearish trend at the KSE with the benchmark 100-share index losing some 30 points to close at 12,364.06 points against 12,394.49 of Monday. The day also saw market capitalization declining to Rs3.266 trillion from the previous Rs3.271 trillion. The market observers, however, expect some improvement with the start of corporate results season. “Expectations for strong earning announcements in blue chip banks, cement, oil and fertilizer scrips this week invited investor interest,” Mehanti said.
