Foreigners offloaded $2.6bn worth of stocks in past seven years

December 29, 2021 (MLN):  Total net foreign selling in Pakistan during the past seven years, has been recorded at $2.6bn, which is around 15% of average free-float market capitalization.

The last time when Pakistan saw any major foreign inflows was in 2017 when Pakistan was upgraded to MSCI Emerging Market (EM index) as the country saw gross foreign buying of $452mn on May 31, 2017 – which was the rebalancing date, a report by Topline Securities highlighted.

Net foreign selling in 2021 till December 27, 2021, stood at $365mn, compared to last year’s $572mn, marking a 36% decrease in overall foreign selling.

Sector-wise, the selling in 2021 was dominated in Banking, Oil & Gas exploration and Fertilizer sectors. The net selling in these sectors stood at $167mn, US$60mn and US$55mn respectively.

According to the Topline report, staggering currency devaluation, volatile macro environment, the lesser concentration of IT stocks and outflows from emerging markets are to be attributed as some of the key factors behind the outflows over the years at the Pakistan Stock Exchange.

Pakistan’s current account deficit in 5MFY22 rose to $7.1bn compared to US$1.9bn last year in the same period. As a result, Pak Rupee lost 11% of its value against the USD in 2021 till December 28, 2021.

Due to consistent selling by foreign funds, total foreign ownership of Pakistani stocks has reached a decade low of US$2.1bn, compared to the peak of US$8.3bn witnessed on Jan 6, 2017, the report quoted.

With regards to the future outlook, the report states that no major selling will take place in 2022. This is because out of the current $2.1bn, shares worth about $0.4-0.8bn are held by foreign sponsors or strategic investors as classified by SBP- these are unlikely to be offloaded in the market.

Out of the remaining foreign holding, some foreign holdings pertain to illiquid stocks (for instance: Nestle Pakistan, Muree Brewery, Colgate Palmolive, Pakistan Tobacco etc). This means that these illiquid shares can be privately placed and would not directly affect local liquidity.

With respect to inflows from Frontier Funds post-Pakistan classification to Frontier Markets, the report underscored that it is difficult to gauge the expected inflow due to lack of data availability. However, given Pakistan small weight of 1.25% in the MSCI FM index and reduced foreign ownership of Pakistani stocks, a small inflow/outflow of $50-100mn in 2022 is expected.

Compared to the regional markets, net foreign outflows were witnessed by all markets except for India, China and Indonesia.

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