The foreign investment inflows in the equity market stood at $42.8 million in January 2022. The inflows of portfolio investment stood higher than the outflows for the first time in the current financial year.
The latest data of the State Bank of Pakistan (SBP) showed that foreign investments in the domestic market significantly increased, reversing the trend of higher outflows. The inflows in equity of $42.8 million in January were higher than the outflows of $19.3 million, indicating a positive trend for the equity market.
The change in January could be a reflection of high yields on the domestic bonds while equity also offered good returns at the beginning of the new year.
The SBP data shows a rise in foreign investment and helps reverse the trend of higher outflows.
The foreign investment in MTBs reached $15.06 million in January against zero outflows, reflecting an increased attraction for short-term domestic bonds. Before COVID-19, the inflows were highly attractive for foreign investment but the pandemic had an adverse effect on the situation.
However, with the 6.25 percent cut in the interest rate by SBP within three months after the emergence of COVID in March 2020, the returns on MTBs also significantly dropped. The low rate of return and the pandemic-related uncertainty discouraged foreign investors as a result the country witnessed an outflow of over $3 billion.
However, in the second quarter of FY22, the central bank started lifting the interest rate by 250 basis points to 9.75 while the yields on the MTBs also rose significantly.
The latest auction held on January 26 witnessed the cut-off yields on three-month T-bills risen to 10.29 percent, on six-month T-bills 10.69 percent, and on 12 months to 10.92 percent.
Bankers believe that the increasing cut-off yields would attract more foreign investment in the coming months, saying the zero outflows reflect this situation.
PIBs also succeeded to attract $7.93 million in January against an outflow of $5.99 million.
However, the overall flow was negative during the first seven months (July-January) of FY22.
The inflows in equity, MTBs and PIBs were $580.5 million against the outflows of $1,032.4 million in the seventh month of FY22, making the cumulative net flow as negative $451.9 million.
Source: Pro Pakistani