Rupee’s decline, won’t spike foreign investors interest in PSX

Stock exchange has experienced $585 million outflow by foreign funds in the last twelve months

LAHORE: State Bank of Pakistan’s decision on Friday to devalue the rupee won’t be enough to prop up the ailing stock market and attract foreign investors, which has been beset by political tension and worrying economic indicators.

The rupee has endured a fall of 4.86 percent against the US dollar since the central banks decision to let the currency devalue on Friday. This has raised questions over how much further the benchmark KSE-100 index would tumble in lieu of rupee’s continuing decline against the dollar.

But this doesn’t mean, it will fuel optimism of foreign investors coming back to take the plunge in a stock market which has slumped 27 percent from its peak in late May. In a comment to Bloomberg, a Swedish asset manager Tundra Fonder AB said, “At least a 10 to 15 percent decline in the rupee would be needed to revive foreign interest in equities.”

Despite Pakistan’s reinstatement into MSCI Emerging Market Index (EMI) in June, the stock exchange has experienced $585 million outflow by foreign funds in the last twelve months.

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A United Nations report last week warned Pakistan’s policy of keeping the rupee stable could become untenable if the US dollar appreciates against other world currencies and possibly erode the country’s foreign exchange reserves.

PSX has endured contrasting fortunes, to being rated the best performing stock exchange of Asia in 2016 with an astounding return of 46 percent.

In comparison, 2017 has been the exact opposite for PSX, as it has endured a terrible run which has resulted in it becoming the worst performing stock market of Asia.

Enduring political uncertainty and widening current account and trade deficit hasn’t assisted the stock market, but only compounded its miseries. Also, rumours of an imminent stock market bailout worth Rs20 billion which surfaced in late-October seem to have faded away and burst the bubble of brokers who hoped for a turnaround in fortunes.

KSE-100 index witnessed another volatile day on Tuesday, when market crashed to another fresh 2017 intra-day low of 37,737 points before value investors cherry picked stocks with attractive valuations which led the index to recover and close slightly in the green zone at 38,525 points.

Adding to the mix was news of deadlock over bills in Senate raised worries over timely elections next year.

Furthermore, Mattias Martinsson, the Stockholm-based chief investment officer at Tundra Fonder in a comment to Bloomberg said, “I don’t think it is enough’’ if the currency stabilizes around the current level. In our discussions with investors and potential investors, 80 percent of the discussion has been on the currency.’’

 

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Mohammad Farooq
The author is an Assistant News Editor at Profit by Pakistan Today. His works have been published in Dawn, Express Tribune, LiveMint India, Huffingtonpost India and The News on Sunday. He tweets @MohammadFarooq_
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