LAHORE - The foreigners hold close to $4 billion worth of shares in Pakistan market which is 8 per cent of market cap and 30 per cent of free float. Capital market experts believe that if the new government takes right steps to tackle energy crisis and security issue, more inflows can be seen in Pakistan assuming no major global market sell-off. The net foreign buying during 2012 was $125 million while in 2013 to date it has already reached $359 million, official released numbers show.

Net foreign buying recorded at US$265mn, which included $172m worth of net buy in Unilever, according to NCCPL data (May 30, 2013). Ex-Unilever transaction, they estimate foreigners bought shares worth $203 million and sold $110 million worth of shares rendering into net buy of $93 million approximately.

Properly analyzing these numbers show that there are few one timers. In 2012 Hubco sponsor, National Power International Holdings (NPIH) sold its stake worth $69m. Thus excluding Hubco net foreign buying was $194mn in 2012. Similar is the case in 2013 where Unilever buy back is overstating the foreign flows. It has been estimated that excluding the Unilever buying by its sponsors, the net buying is to the tune of $186m. Though better than last year but it is not a big number considering that other comparable markets has seen inflows far higher than Pakistan.  With new political setup coming in, re-rating of the market is a possibility, however, it is greatly dependent on the structural reforms that the incoming government will make, experts said.

Meanwhile, amid continued foreign buying, local bourse continued rallying to add another 2.5 per cent during the week to close yet new high at 21,800 points mark. Volumes also rose by 5 per cent to 461m shares on average. Continued foreign interest remained in heavy weight OGDC, MCB and PSO while local investors were also seen highly active in mid cap stocks like FCCL, DCL, NIB and BOP. Energy stocks also remained in the limelight amid strong signals to resolve circular debt issue from the upcoming government. Experts said that investors will eye CPI announcement, upcoming Monetary Policy and budget related developments.

Experts are of the view that investor mood remained bullish as active participation was witnessed by both local and foreign investors. This was evident from strong average daily volumes of 462m shares (up 5.2 per cent WoW) for the week. Investors maintained their confidence level on the back of PML-N’s pro-business stance and hopes on the resolution of the energy crisis in the country. Later during the week news reports came in that Federal Board of Revenue (FBR) has rescinded the zero rated facility on dairy and other products but this news could not break positive momentum at the stock exchange.  However, the banking sector remained under pressure as it underperformed the market by 0.5 per cent mainly on grounds of risk of further shrinkage in spreads if the Discount Rate (DR) is further cut from here in the upcoming MPS.  According to Topline Securities experts, election related enthusiasm; foreign flows had played a key role in the recent rally at Pakistan bourse.

Active interest by foreigners in the month of May has made Pakistan amongst the best performing market of Asia in 2013 to date with gain of 24 per cent. This is after an excellent 2012 where Pakistan was amongst top 10 markets in the world. Critically analyzing the foreign fund managers buying and selling data, they observed that inflow is not abnormal.

After 14 per cent pre-election rally three months before the polls in line with past trend, the local market saw a post-election jump of 4 per cent mainly led by foreign inflows. Taking year to date gain from Pakistan stocks to 24 per cent in local currency and 22 per cent in US$. And the encouraging sign of this rally is that volumes increased to Rs6.5b a day ($65.6m) in May compared to Rs5.1b a day ($51.3m) during last one year. Moreover, the indicators from leverage markets also pose no major risk. MTS (Margin Trading System) and futures open interest looks at comfortable levels thereby endorsing that the gains seen is mainly led by foreign flows rather than speculative and leverage buying.