KARACHI: During the first nine days of this month, foreign investors have shown a greater preference for domestic bonds than for the record-breaking share market.
According to a report released by the State Bank of Pakistan (SBP) on Wednesday, foreign investments in Treasury bills up until April 9 totaled $20 million, which was more than the amount invested in equities.
This situation is notable because despite the fact that domestic and foreign investors have been drawn to the equities market boom, inflows into Treasury bills in April are still higher. The equities market saw $16.9 million in inflows over the first nine days of April.
When international investors shifted to domestic bonds in the second half of the current fiscal year, it was a particularly noticeable shift. Treasury bills are very appealing to both domestic and foreign investors since they can yield returns of up to 21%.
In the first nine days of April, foreign investment in bonds hits $20 million.
Bankers credit exchange rate stability for the foreign investment in treasury bills. They pointed out that the biggest inflows of T-bills were in 2019, following the launch of Covid-19, when over $4 billion was repatriated. Since then, investors have continued to exercise caution, but political and economic unpredictability has also been a major deterrent for international investors from entering the bonds market.
T-bill inflows totaled $183.6 million from July 9 to April 9, FY24, with the majority occurring in the latter half of the current fiscal year. To far, the corporate sector and domestic financial institutions have invested over Rs4.8 trillion in government bonds. There are no indications of an interest rate reduction in the upcoming monetary policy, since the cut-off yield has stayed at about 21 percent.
According to SBP data, inflows into the equities market from July 9 to April 9, FY24, totaled $360.6 million, keeping the market at record highs. Since the country’s rating declined throughout the current fiscal year, international rating agencies have not yet raised it.
Positive economic trends, especially the productive negotiations with the International Monetary Fund (IMF), according to bankers, may draw in additional foreign capital to buy local bonds.
Pakistan anticipates receiving final IMF approval for the third $1.1 billion payment of the Stand-By Arrangement.
With another meeting scheduled for May of this year, Finance Minister Mohammad Aurangzeb, who headed the delegation to Washington to negotiate with the IMF, voiced hope for a fresh loan from the organization.
Bankers advise that in the event that the next monetary policy lowers interest rates by 100–200 basis points,
Foreign investors would still find the cut-off yield on domestic bonds to be favorable. They went on to say that stable currency rates are also necessary to keep investments appealing.
