Foreign funds are seen to be quickly shifting capital from the emerging markets that largely depend on oil, to the developed markets. — File Photo

KARACHI: As the Brent is on the boil, foreign funds are seen to be quickly shifting capital from the emerging markets - that largely depend on oil, to the developed markets. On Thursday, the Pakistan capital market saw foreign portfolio outflow of $7.25 million which many market participants thought was major bleeding witnessed in many months.

“Most foreign funds were re-entering the developed markets-US, Japan, which they had deserted a couple of years ago in search of higher returns in the Emerging markets”, said an analyst who keeps tab on international funds behaviour.

The foreigners were watching with concern the uncertain outcome of the uprising in Middle East and particularly Libya and wondering whether the fire would spread further to more oil producing countries.

At the KSE, the $7.25 million net sale by overseas investors on Thursday included shares in Engro worth $2.4 million, traded in off-market deals, traders said. They said that Fauji Fertilizer and MCB Bank were other two stocks, which passed on from foreign to local hands. But the redeeming feature of all of that was that the shares offloaded by foreigners were fully absorbed by local individual and institutional participants, represented by the fact that the KSE-100 index slipped by a mere 0.02 per cent or 2.36 points during the day. This reflected a departure from Feb 22 trend when a high net sale by overseas investors to the tune of $3.1 million had brought the market crashing down by 315 points.

Atif Malik, head of institutional sales at JS Global said that the reason for foreigners to flee the emerging market was their concern over mounting inflation and interest rates.

The rising prices of oil and commodity were feared to hurt the regional markets, which was why US, Japan and several other developed markets were enjoying the benefit of return of the money, which earlier had departed to foreign lands.

Atif produced figures of foreign selling in regional equity markets since the start of the year-to-March 9, which quite clearly showed that Pakistan had so far remained immune to the  gloomy trend prevailing in most other emerging and frontier markets: Negative trend (net outflow) was witnessed in India: $1.8 billion; Indonesia: $524 million; South Korea: $2.5 billion; Thailand:$508 million; Philippines: $115 million. While a few saw positive (net inflow), which included Pakistan: $71 million; Taiwan $165 million; Vietnam $54 million and the flow of liquidity entering the Japanese market, peaked at $18.7 billion.

The fire that fuelled concern of investors in KSE stocks on Thursday was that the rally that had driven stock prices up by an incredible 10,000 points since January of 2009 and provided return of 28 per cent to the equity investors in 2010 was led almost entirely by foreigners.

Offshore funds were now controlling nearly a quarter of the KSE free float. What would be the outcome, if foreigners decided to seek an exit? The question was troublesome but many participants thought the concern may be overblown.

“As the Margin Trading leverage product enters the KSE from Monday, local investors with larger participation would be able to absorb the foreign sale, if at all, it were to come”, said a trader who held on to the optimistic outlook.