KARACHI, Oct 18: The US and Switzerland made heavy investment in Pakistan’s stock market in the first quarter of this fiscal year. But that could not avert a net outflow of funds from the market — 10 times higher than in the same period of last year.

The two countries made combined portfolio investment of $24.8 million in July-September 2003, up by 259 per cent from $6.9 million in July-September 2002, according to the latest SBP statistics posted on its website.

But this rich feeding that became richer with some inflow from the UAE could not help local bourses from starving at the end of the day: they recorded an overall outflow of $28.2 million in the first quarter of this fiscal year — 10 times larger than a net outflow of $2.8 million witnessed in a year-ago period.

What wiped off a total investment of $28.7 million, including that of $3.9 million from the UAE, up from $2.8 million in a year -ago period, were huge withdrawals of funds from investors based in the UK, Hong Kong, Korea and Singapore. The investors of the four countries combined took out $35.3 million — UK $18.8 million; Hong Kong $5.7 million; Korea $6.1 million and Singapore $4.7 million. But the trend of divestment did not remain confined to these four countries only. Investors based in Germany, Japan, Saudi Arabia, the Netherlands and other countries also took out money from Pakistan bourses.

Senior fund managers say Pakistan saw a dramatic increase in portfolio investment from the US and Switzerland because the two countries boast of advance fund management techniques and they know when and where to invest money. Says former Karachi Stock Exchange chairman Arif Habib: “The amount of investment coming in from the US and Switzerland is not that big but the growth rates are. The basic reason for this is that fund managers based there know well when and where to invest.” Mr Habib said fund managers in the US and Switzerland had shown much interest in the eurobond of Dewan Salman group and Pakistan’s dedicated fund when the same were marketed in the middle of 1990s and he had attended their global road shows.

When asked why portfolio investment from two other centres of fund management i.e. Hong Kong and Singapore remained negative in the first quarter of this fiscal year, he said: “It also depends on what view a fund manager takes on an economy or its markets at a given point of time.”

When asked if he can trace a link between higher inflows from Switzerland and reverse capital flight by those Pakistanis who have amassed untaxed money there, Mr Habib said: “Investment in stock market is very well documented and identities are recorded at various stages. So stock market is not the right place for them (i.e. those who want to bring back the ill-gotten money that was parked overseas).”

But several other senior stock brokers say and bankers confirm that regulations do not come in the way of those who want to bring back home via stock market the ill-gotten money parked overseas. “There are always front-men working for such people. If a foreigner or even a non-resident Pakistani is making investment here fulfilling all the requirements you never know who is behind the scene,” said a former chairman of KSE who declined to be named for obvious reason. Another former chairman even named half a dozen people who he claimed had brought back via stock market big amounts of untaxed money they had previously parked overseas — particularly in the US and Switzerland. The list he cited and insisted as being correct includes the name of yet another former chairman of the KSE, a textile tycoon with business interest in banking, a close relative of a former commerce minister, a high- tech fund manager not enjoying a good repute among stock brokers of integrity, a stock broker whose company’s share-value is almost always volatile and owner of a very large and old textile group.

ASSET PRICE BUBBLE: Some bankers and stock brokers say one of the reasons for net withdrawals of $28 million from the stock market is that foreign fund managers have realized that an asset price bubble is in the making here. “That is why they are offloading their positions,” said a bank treasurer, meaning that the foreign fund managers who withdrew money from Pakistan stock market in July-September knew that the rise in the stock value was not so sustainable. The Karachi Stock Exchange 100-share index rose from 3,400 at end June this year to 4,163 points at end-September, showing a big increase of 763 points within three months.