KARACHI: Foreign investors pulled out of Pakistan’s bonds and equities this month, driven by geopolitical risks associated with the ongoing conflict in the Middle East.
Investors withdrew a net $177.9 million from Pakistan’s Treasury Bills (T-bills) as of March 19, compared with $31.2 million in February, data from the State Bank of Pakistan (SBP) showed on Friday.
Overseas investors poured $19.257 million into T-bills but withdrew $197 million. They also sold $21 million in Pakistan Investment Bonds (PIBs) and $148.7 million from their portfolios at the Pakistan Stock Exchange (PSX) by March 19. Inflows into the equity market were $7.4 million, while outflows reached $156.1 million. Overall, cumulative inflows in bonds and equities amounted to $27.7 million, while outflows totalled $375.8 million. In total, foreign investors sold T-bills, PIBs and equities worth $348 million.
Analysts note that the departure of foreign investors from Pakistani markets is not a new trend. However, the current wave of selling is particularly influenced by the heightened global risk sentiment due to the ongoing Middle East conflict, which has caused a sharp rise in oil prices. This is particularly troubling for Pakistan, as oil accounts for about one-third of its import bill. The increased oil prices create immediate pressure on the trade balance and raise concerns about the sustainability of recent improvements in the current account. In this environment, higher oil prices are likely to widen the current account deficit and increase demand for dollars, exerting downward pressure on the currency. As geopolitical risks escalate, investors tend to reduce their exposure to emerging markets and seek safer assets.
“While the conflict may continue for a few days before a clear resolution emerges, foreign inflows into T-bills have already been impacted, and remittances could also be affected, putting pressure on the currency, which had shown some recent appreciation,” said Waqas Ghani, head of research at JS Global.
The Pakistani rupee is currently stable, trading at 279 against the US dollar.
