Requirement to disclose fund source stirs capital flight

KARACHI: An attempt to record stock market’s transactions of foreign institutional investors and make them disclose the source of funds is the prime reason of flight of capital from the local bourse, said a source on Wednesday.
The market source said it is an established fact that some local investors are routing their fund via foreign destinations into the local capital market to be entitled as foreign fund.
“If the source of such an investment is disclosed what’s the point in incurring an extra cost to route the money,” he told The News.
Earlier this month, the National Clearing Company of Pakistan Limited (NCCPL) had announced tracking of foreign institutional investment to include it in the capital gains tax regime effective from July 01, 2015. The NCCPL advised clearing members, maintaining account of international broker dealers and global custodians, to provide the name and unique identification number of its clients along with the document confirming their status.
The price reported as the transaction price by a clearing member for an individual transaction will be taken into account to compute capital gains tax on securities, it said.
A chief executive officer at a leading brokerage house said local investors’ money invested as foreign funds is being pulled out.
A dealer said such money is now being pumped into the real estate market, particularly in Karachi, reflecting in the surge in construction activities.
Confirming this investment shift, a realtor said that a couple of investors, who accumulated portfolios in the capital market, had approached him to park their funds in the real estate.
“The recent boom in real estate sector is giving an opportunity to multiply invested money,” he added.
The securities firm official, however, said the quantum of the pseudonymous funds is not significant, adding that global funds are in fact retreating.
“Earlier investment was going from the US to the world across and major investments are now pouring in US markets,” he said.
According to NCCPL, foreign portfolio investors have withdrawn a net of $64.155 million from the Karachi Stock Exchange (KSE) since the beginning of this month. The KSE-100 shares index shed 2,545.69 points in March to date.