Despite sequential rate cuts, Pakistan’s debt market remains alluring for foreign investors in FY20

Jul 02, 2020 (MLN): Government securities attracted a record $3.812 billion in overseas cash during the fiscal year 2019-20, out of which around $3.1 billion has flown out of Pakistan’s debt market, indicating that international investors now hold less than $700 million worth of investment in T-bills and PIBs.

In first 8 months of FY20, the appetite of foreign investors for government backed domestic securities increased as the central bank hiked interest rates by 7.5 ppts over a period, which resulted in unprecedented rise in yields. Moreover, in the wake of global low interest rates, the returns on T-bills were highly attractive.

After that, in the aftermath of rapidly spreading coronavirus across the world, foreign investors started slashing their holdings in T-bills and PIBs in panic which triggered a new round of Rupee depreciation in month of March and April in which a huge pullout of hot money was observed. Meanwhile, in the mid of April 2020, foreign investors returned to local debt market in the middle of the covid-19 pandemic and injected $208.75 million in T-bills, as the return of around 9%-10% during that time encouraged investors to revert to Pakistan compared to almost zero return on investment in bonds of developed economies. This surprise move partly helped the rupee to recover.  

Despite sequential rate cuts over the past three months, Pakistan’s debt market in FY20 remained alluring for international investors due to high returns as in the last month of the FY20, nearly $77.49 million net were invested via SCRA in government securities, data from the State Bank of Pakistan revealed.

On the other hand, foreign investment in equities has shown more volatility. Total inflows during FY20 were $732.47 million while outflows stood at $1.134 billion.

Most of the money came from investors based in the USA and UK, with the former accounting for $892.8 million in T-bills while inflows from the latter clocked in at $2.58 billion during the fiscal year under review.

Other than these two, investors from the UAE parked $109.3 million in T-bills, those from Ireland registered $41.7 million while $45.4 million came from Luxembourg.

Furthermore, $45.8 million, $31.3 million and $18 million, came in longer-tenor PIBs from UK, UAE and USA based investors respectively.

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