Foreign investors dump $162mln of debt assets in 8 months

KARACHI: Foreign investors offloaded around $162 million from government securities, as they preferred to keep exposure to Pakistan’s debt market lower amid soft interest rate and Covid-related uncertainty, analysts said on Saturday.

Foreign investors continued to remain net sellers of the government papers, namely treasury bills and Pakistan Investment Bonds (PIBs) from July 01, 2020 to February 02, 2021, showed the State Bank of Pakistan’s (SBP) data.

The breakdown showed they invested a total of $561.6 million and sold $399.8 million short-term and long-term government papers in the period under review.

Foreigners bought $294.97 million worth of T-bills, while they sold $561.64 million short-term government securities. Moreover, foreign investment in PIBs stood at $104.86 million. Foreign divested $52,000 from long-term instruments.

Analysts said the continual hot money outflows from the local fixed income market indicates that the government debt has become less attractive for foreigners with the SBP having slashed policy rate by 625 basis points to 7 percent since mid-March last year to help revive economic growth.

The reduction in interest rates was to support the economy affected by lockdown related to Covid-19. The growth contracted 0.4 percent during the last fiscal year. The State Bank of Pakistan wants to keep the interest rates soft for the time being to help the economy maintain the growth recovery pace.

However, analysts also ascribed the outflows to Covid-related uncertainty in less and underdeveloped economies.

“The country faced outflow from foreign investors from its fixed income securities after the onset of Covid-19 which triggered a flight towards safe countries. This also resulted in outflow from emerging countries to developed nations,” said Samiullah Tariq, head of research at Pak-Kuwait Investment Company.

With the start of the Covid pandemic, emerging markets witnessed a massive outflow of portfolio investment. The investors started shifting their portfolios to safe assets like the US dollar and gold from equities to hedge against expected volatility in the equity market.

Although the markets in emerging economies somewhat recovered from the lows observed in the early days of the pandemic, the portfolio investment outflows by the foreign investors continued due to uncertainty over new waves of infections.

In the meantime, the US dollar started weakening against the major currencies, which further increased the demand for gold and put upward pressure on its price. Moreover, the central banks were also aggressively cutting interest rates during the pandemic to stimulate domestic economies.

The lower yields may have created disincentive for debt market investors, as the bond prices started to rise and thereby reduced yields.