January witnessed a net selling of $35 million (January 1-30, 2024) by foreign portfolio investors. This is the highest net selling by foreigners at the Pakistan Stock Exchange (PSX) after 12 months, according to Topline Securities.
To recall, after the IMF deal in June 2023, Pakistan saw renewed foreign portfolio interest in the local bourse. In the last 6 months (July to December 2023) foreign corporates bought shares worth $239 million and sold $164 million at PSX resulting in net buying of $75 million.
The foreign corporate turned net buyers in 2023 after 3 Years and PSX saw the highest inflows after 8 years. IMF loan, stable PKR, and strict measures taken by the caretaker government played a major role in this inflow at PSX. However, the recent above-average selling of $35 million in January 2024 has raised some concern amongst investors especially when the market was waiting for a pre-election rally. Notably, the leading global ETF has been the biggest seller in the market.
On January 19, 2024, Global X ETFs, the New York-based provider of exchange-traded funds, announced the scheduled liquidation of the 19 ETFs including Pakistan ETF, based on an ongoing review process of its product lineup to ensure it meets the evolving needs of its clients.
At the end of December 2023, this ETF had an investment of $33.23 million in Pakistan. And now based on January 30, 2024, this ETF holding in Pakistan has come down to $2.3 million. Based on these numbers, the selling by this fund is almost over.
Thus, this reduction in the size of this ETF has been a major portion of foreign corporate selling seen at PSX in the last few weeks. The report sees PSX recovery resume after this selling pressure in the year 2024. It further expects the benchmark KSE-100 total return index to reach 75,000 by December 2024.
“However, this is based on current low PE multiples without assuming any re-rating amid the high risk of debt sustainability. We may also see a post-election rally in line with historical trends,” stated the report.
Smooth transfer of power to new government after elections, new long-term funding program from IMF and expected fall in Interest rate will be the key drivers of equities in 2024, it added.
Pakistan’s market is currently trading at a PE of 3.7x based on 2024 estimated earnings. This is far lower than the last 5-year and 10-year average PE of 6x and 8x respectively. This is even lower than countries that have defaulted on external debt.