Pace of hot money outflow slows down by 65% MoM in April'20

May 11, 2020 (MLN): The exodus of foreign investors from Pakistan’s debt market is continuing with net sales of the government’s denominated securities particularly T-bills during the month of April 2020 recorded at $601 million.

The major portion of the hot money was largely extracted by UK investors as they evacuated $444.18 million net followed by US investors who pulled out $146.35 million from the local debt market.

However, it is important to note that the pace of the net selling of domestic debt securities by foreign investors decelerated  by 65% MoM as in the previous month foreigners detached a whopping $1.73 billion net from T-bills.

Besides, the month of April also witnessed some uptick in hot money inflows compared to the previous month as according to SCRA data released by SBP, there were 4 such sessions in the month when the country witnessed inflows along with outflows. Of these 4 instances, the highest inflows of $200 million were recorded on Friday i.e. April 17, 2020. The astonishing factor behind this inflow was it happened right after the surprise decline of policy rate by further 200 bps to 9%, thereby, contravening the fallacy that hot money was only coming due to high-interest rates.

This prompted the market participants to anticipate that the current spell of panic selling of short term and long term debt instruments (T-bills and PIBs) might come to an end as Pakistani rupee (PKR) witnessed an appreciation of 3.3 rupees against US Dollar (USD) on the same day and closed at PKR 163.58 per USD, against the previous closing of PKR 166.88 per USD.

The detailed analysis of the data revealed that the entire inflow in the treasury bills during the month clocked in at $208.7 million, mostly came from the United Kingdom ($204.5 million), as the international investors are still finding local debt market fairly attractive compared to negative returns in the developed economies.

On the equity front, the outflow was greater than inflows during the month under review. As per the SBP data, the outflow of investment from the equity market during the month was $128.75 million against inflows of $22.6 million.

Cumulatively from fiscal year to date, the data showed that foreigners have pulled out around $2.89 billion investment from T-bills, this was around 79% of the total investment ($3.64 billion) recorded in T-bills so far.

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