September outflows from equity, bonds mar 1QFY22

KARACHI: September was the worst month for foreign investment in equity and domestic bonds as the outflows were more than double the inflows which marred the improvement witnessed in the first two months of the first quarter of FY22.

The massive share offloading by foreign investors was one of the major reasons for heavy losses the KSE 100 index suffered during the month. The benchmark index lost 5.3 per cent during September which was the worst month after March 2020.

The latest data issued by the State Bank of Pakistan (SBP) on Friday showed that in September the inflow of foreign investment in equity was of $50.8m while the outflow was $136.8m. There was a net outflow of $86m from the equity market in the month.

The situation was not different in case of domestic bonds as the outflows were much higher than the inflows. The foreign investments in T-bills during September was of $18.6m while the outflow was $38.7m. The inflow in Pakistan Investment Bonds (PIBs) was just $2.5m while the outflow was $12m leaving no hope for the government to attract ‘hot money’ to improve declining foreign exchange reserves.

Topline Securities chief executive Mohamamd Suhail said non-stop selling by foreigners continued at the equity market. The market witnessed $50m net selling in September while $225m in 9 months of 2021, he said.

“Foreign ownership lowest since 2009; foreign portfolio holding reduced from a high of $8 billion in 2016 to just $2.6bn now,” said Mr Suhail in a tweet on Friday.

The inflows in equity, T-bills and PIBs were $72m while the outflows were of $187.5m in September noting a net outflow of $115.5m.

Due to worst performance in September, the entire first quarter July-Sept FY22 came under pressure showing a heavy outflow from each segment.

During July-September the total inflows were $245.9m while the outflows were over $386.8m making the cumulative net outflow of $141m.

Further details showed the outflow from equity during the quarter was $234m against an inflow of $108m. The improved situation for investment in T-bills reversed in September. The total outflow from T-bills was $132.4m against an inflow of $118.2m during the quarter.

In case of PIBs, the outflow was $20.3m against an inflow of $19.8m during 1QFY22 reflecting the higher outflow $12m in September.

The SBP has been keen to attract foreign investment through domestic bonds and initially it succeeded in building up investment of $3.5bn but the outbreak of the pandemic in March 2020 eroded the entire investment. The new fiscal FY22 started with inflows in both the T-bills and PIBs but the change in Kabul created uncertainty for the investors as reflected from heavy selling in equity and domestic bonds.

Analysts said the Afghanistan uncertainty being the key reason for exchange rate instability was still there. The rupee lost about 2.3pc in September alone against the US dollar and it is to remain under heavy pressure amid expectations of higher current account deficit.