Less than $150 million of net buying by 'foreign corporates' since the middle of last year has pushed the KSE100 Index to a record high, rising around 70% and breaching the 75,000 level.
Though the valuations are still attractive, consider the fact that if this modest inflow has pushed the market this high, imagine where the market would be if even half of the $1.5 billion outflow since 2018 returned to the PSX. Note that within the five-year period from 2018 to the end of 2022, foreigners withdrew $1.5 billion from the Pakistani market.
This highlights the shallowness and limited size of the Pakistani market. Local fund managers face a challenging environment, grappling with foreign capital flows on the one hand and the realities of Pakistan's political and economic situation on the other.
In the months before foreigners entered the PSX, specifically before the middle of last year, the market touched absurdly low levels due to foreign outflows and high interest rates, with the threat of default looming. During this period, a record number of buybacks were announced, and a significant number of large blocks of shares were acquired from the market by owners or high-net-worth individuals related to them.
These buybacks and large acquisitions have further reduced the free float in the PSX, which already has a very low level of free float. This is on top of years of economic stagnation that has limited the growth of the Pakistan Stock Exchange in terms of new listings.
Now we are facing a scenario where foreign investors are moving back to Pakistan, either as passive investors following PSX weightage in global indices or as opportunistic investors seeking low valuations. During their years of absence and withdrawal, the market has become a skeleton of its former self.
So, just imagine if all those who left came back.