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Existence of foreign investors hope and confidence into Pakistan

Foreign investors kept lured to investment in Pakistan and never losing faith and still have an appetite of making money in the country for an example after six months of Osama Bin Laden death (2011), a leading Swede investor named Mattias Martinsson invested $1 million into Pakistan of his own money and that of his partners. The fund is valued at $100 million now. Moreover now the huge investment of $57 billion by China under China-Pakistan Economic Corridor (CPEC) since 2013 into Pakistan is big example that how the investment interest in Pakistan is intact as this CPEC projects will likely attract other nations and businesses to our country’s investment confidence.

Major energy projects and infrastructure along the CPEC, a major pilot project under the framework, will serve as an important role to drive Pakistan’s economic growth and bring more economic activities and opportunities to the country. Along the corridor, the Thakot-Havelian section reconstruction project of the Karakoram Highway, the only overland channel connecting China and Pakistan, the Multan-Sukkur section of a motorway linking Peshawar and Karachi, as well as the Orange Line of the Lahore Metro have begun.

Chinese enterprises have invested more than $50 billion in countries along the ‘Belt and Road’ routes. In the first three quarters of 2016, China-Pakistan trade reached over $14 billion, and the value of newly signed engineering contracts by Chinese enterprises has surpassed $7.1 billion.

INVESTMENT IN PAKISTAN STOCKS

“Most people get interested in stocks when everyone else is”, a famous quote of American business tycoon, Warren Buffet.

Foreign buying has returned at a time when locals had chosen to remain on the sidelines, trade volumes had dried up and the benchmark index had dropped 22 percent to 41,206.99 points on August 31, 2017 from an all-time high closing of 52,876.46 points on May 24, 2017.

The KSE-100 index gained 2.9 percent in September 2017 on a quarterly basis; the benchmark index declined 8.9 percent in first quarter of fiscal year 2018 – the worst quarterly performance in 36 quarters or 9 years since Jun 2008/ fourth quarterly 2008. Earlier, the PSX came out with the best Asian market title in calendar year 2016, but foreign investors remained net sellers of over $361 million at the market, according to National Clearing Company of Pakistan Limited.

In September this year, foreigners bought stocks in the banking sector worth $14.5 million, cements $11.6 million, fertilizers $10.9 million and oil marketing companies $9.5 million, but sold stocks in the oil and gas exploration and production companies sector worth $13.7 million. Foreign investors have made value buying in the said sectors. The banking stocks had overreacted to developments including Habib Bank Limited’s New York branch fiasco, which it settled by paying a penalty of $225 million.

Besides, National Bank of Pakistan received two back-to-back setbacks as it unearthed a scam of Rs18.5 billion at Bangladesh branch and lost a litigation of Rs48 billion against its pensioners at the Supreme Court.

Similarly, fertilizer prices in international markets had shot to a recent time high of $290 per tonne. Significant recovery in international oil prices during the month attracted foreign investors to indulge in value buying. Foreign investors were also estimated to inject up to $70 million in PSX names following FTSE, an international company specializing in index calculation, included five additional stocks from Pakistan in its Asia Pacific ex-Japan Index with effect from September 18, 2017. The five additions FTSE made from Pakistan were: MCB Bank, Sui Northern Gas Pipelines, Bank Alfalah, Millat Tractors and Thal.

Earlier, foreigners injected $7.9 million in June 2017. The month had seen a return of the PSX to MSCI Emerging Markets (EM) after 9 years in the Frontier Markets Index. Pakistan had estimated foreign buying worth $500 million in the event of PSX’s return to MSCI EM – another international index service provider.

In actual, they invested larger part of the estimated amount in the event, but continued sale by the foreign ‘passive funds’ at the time reduced net foreign buying volume to mere $7.9 million. Earlier, foreign investors injected slightly over $22 million in July 2016. This was last month that followed a long lull from foreign investors at the local bourse.

In an interview, Martinnson said that Pakistan blocked NATO supply routes following the bombing of one of its military bases by the United States causing the market to fall by 10 percent. The foreign investor kept investing in the Pakistani stock market and in the situation started to change in 2012. The market went up and we raised $50m in three months. Martinnson feels satisfied the South Asian country entered the MSCI Emerging Markets Index on 1st June 2017 which was an indicator that the economic situation was changing.

It is important to mention that MSCI Emerging Markets Index comprises of 23 high-growth economies including India and China.

Pakistan was in the index of emerging markets but was downgraded to frontier market because of Pakistan Stock Exchange’s (PSE) decision to shut down for four months in late 2008 after a significant decrease in prices were witnessed.

Managing Director of PSE Nadeem Naqvi said, “We were kicked out in 2008 after the financial crisis because of measures Pakistan took at the time to stop foreign funds from fleeing the country. Obviously foreign investors got a rude shock.” “We did a lot of lobbying and reforms to get re-included again into this index,” he tells from Karachi. He assured the investors, that the KSE will be a liquid market.

Parliament passed the Pakistan Stock Exchanges Act in 2012, which has improved corporate governance and reforms to prevent a reoccurrence of what happened in 2008,” he added.

MUTLI-NATIONAL COMPANIES INVESTMENT

Pakistan economy performed less well than expected. Several factors can be attributed to this sluggishness, for instance, terrorism, corruption, poor law and order, political instability and lack of infrastructure, combined with power outages and gas shortage. A large middle-class section, some 60 percent of which is young, has been emerging and it looks for quality products and services with an expectation for value for money. MNCs still dominate in cola and ice cream. For example, in carbonated soft drinks, Coke and Pepsi are still the market leaders.

After a number of failed attempts, for the first time local cola brand – Gourmet has also become a noticeable opponent.

In a very little time, it has achieved the consumer acceptance through visibility, availability and distribution networks and at-par quality. Now whether Gourmet will make a further dent in the cola market share, time will tell.

Unilever’s Wall’s is still the market leader when it comes to ice-cream in Pakistan. However, Engro Food’s Omore is a tough challenger too with second biggest market shares.

Now that Engro Foods has been acquired by the Dutch dairy maker, FrieslandCampina for $447 million, there could be space for another local dairy ice cream brand. The flexibility of these brands suggests that come what may, talented Pakistanis can beat their MNC counterparts with aggressive marketing tactics. It will become useful once the China-Pakistan Economic Corridor along with nine manufacturing special economic zones resolves the current power and infrastructure issues, allowing manufacturing and trade to grow to a scale. It should be noted that the market dramatically downwards and the country became the last place for foreign investment.

A significant increase in Pakistan’s Gross Domestic Product (GDP) has also increasingly been recorded over the last few years. This was charged by the Chinese investment boom as part of Beijing’s One Belt One Road initiative.

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