Pakistani equity market sees historic $65 million inflow

KARACHI: The equity market reached a major milestone in December when it saw a record inflow of $65 million through the Special Convertible Rupee Account (SCRA), which helped push the market to a record high.

Through the SCRA, a financial mechanism, international investors can invest in Pakistan's equities and debt markets with money that they can later convert back into foreign currency.

According to data provided by the State Bank of Pakistan (SBP), in December 2023 alone, SCRA inflows totaled $64.9 million under the equity category, while $103,000 came under the "others" category. Under the latter two headings, there was no inflow. for example, Pakistan Investment Bonds (PIBs) and Treasury bills.

Before the Covid-19 pandemic in 2019, Pakistan had attracted up to $5 billion under the SCRA for domestic bonds (T-bills and PIBs). However, the pandemic’s global impact led to a rapid outflow of over $4bn from these investments.

Since then, the country has not received any significant inflows for domestic bonds, while the inflows for the equity market also remained insignificant.

However, the recent months have shown a revival in investor confidence. The total SCRA inflows for the first half (July-December) of the current fiscal year reached $222m, including $205.8m for equity, $16m for T-bills, $61,000 for PIBs and $103,000 for “others”.

The United States emerged as the largest contributor, with $127.2m of the total inflows. Other significant sources included the United Kingdom ($40.1m), Sweden ($12.1m), the United Arab Emirates ($9.36m), the Cayman Islands ($8.9m), Canada ($7.18m), Luxembourg ($6.98m), and Switzerland ($6.42m).

Almost all inflows from these countries were for equity, except the UK, whose total inflows comprised $23.99m for equity and $16m for T-bills. There was no inflow for T-bills from any other country.

On the other hand, the total outflows for the first half of fiscal 2024 stood at $161.7m, leaving a net inflow of $60.26m.

These inflows, though reflective of growing foreign investor confidence, still fall short of the previous records for domestic bonds. The domestic bonds currently offer returns of around 21.5 per cent, which is substantial compared to returns on dollar accounts.

In addition, the State Bank's reserves have increased to $8.2 billion, a six-month high, stabilizing the currency rate and motivating exporters to sell their holdings.

Although the precise origins of the $1.2 billion inflows that increased the SBP's reserves are still unknown, industry insiders link them to global financial organizations such as the World Bank, Asian Development Bank, and Asian Infrastructure Investment Bank.