(Bloomberg) -- Pakistan's back but not with a bang.
The KSE100 Index posted the steepest fall in almost two years after foreigners sold a net $82 million of shares on the eve of the nation's re-entry into MSCI Inc.'s emerging-markets index and concerns about the economy resurfaced. The outflow, the biggest since July 2013, dashed hopes that the market would attract large amounts of money after its promotion.
“Local investors had positioned with expectation” of inflows, said Ovais Ahsan, regional sales trader at Renaissance Capital in Dubai. “Everyone in general was expecting $200 million to $500 million of net inflows.”
On that list was Cairo-based EFG-Hermes Holdings SAE, which expected as much as $500 million to flow into Pakistani equities. The nation's stock exchange said had tested 15 biggest brokerage to handle up to $2 billion of daily flows in the run up to the upgrade, Managing Director Nadeem Naqvi said on Monday.
The KSE100 Index tumbled 3.6 percent at the close in Karachi, the biggest drop since August 2015 and the worst performance in Asia. The index plunged as much as 4.4 percent earlier.
“Active foreign fund managers have concerns on the economy, mainly the current account and rupee resistance,” said Muhammad Rameez, head of international sales at Foundation Securities Pvt., who had correctly predicted net outflows ahead of the upgrade. The market can decline a further 5 percent this month, he said.
Pakistan's economy is showing signs of stress with current account deficit tripling to $7.3 billion in the ten months through April, according to central bank data. The rupee is only currency to have gained against the dollar in Asia since 2014, up 0.5 percent in that period, according to a basket of 13 currencies compiled by Bloomberg.
Pakistan's stock market has registered advances over seven of the eight years since its downgrade to frontier in 2009. Prime Minister Nawaz Sharif averted a balance-of-payments crisis with help from the International Monetary Fund in 2013, and is using loans from China for infrastructure projects. The KSE100 index was Asia's best performer in 2016.
To contact the reporters on this story: Faseeh Mangi in Karachi at fmangi@bloomberg.net, Chris Kay in Karachi at ckay5@bloomberg.net.
To contact the editors responsible for this story: Arijit Ghosh at aghosh@bloomberg.net, Ravil Shirodkar, Vivek Shankar
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