And this happened as the Bloomberg in a latest report said, “A recovery may elude the world’s worst-performing equity market as investors in Pakistan switch out of stocks and into fixed income offering double-digit returns.”
The report said the prospect of earning more than 13 per cent from debt is proving too hard to pass up with the nation’s equity market refusing to show signs of life after being in the doldrums for more than two years.
“The central bank’s efforts to curb inflation and stabilize its currency by raising borrowing costs will keep fixed income attractive for longer, analysts say.”
“The outlook for growth and earnings is not there” for equities to perform, Ayub Khuhro, Chief Investment Officer at Faysal Asset Management Ltd, told Bloomberg. “The only area where you will make money is fixed income.”
“Why would I go into equity when I can invest at rates as high as 14.25 per cent?” said Khuhro. “Equity should be looked at around December next year.”
The benchmark equity index has slumped 41 per cent since rallying to a record in May 2017 as Pakistan’s return to emerging-market status sparked outflows instead of the expected inflows.
In this scenario, Bloomberg says, debt securities have become attractive after the central bank more than doubled its policy rate to 13.25 per cent – the highest in Asia – over 10 meetings to help stabilise the economy.
Pakistan’s mutual fund industry held 52 per cent of its 540 billion rupees of assets in debt, up from 31 per cent two years ago. And inflows into the state-owned fixed income plan for individuals, whose returns are linked to the central bank’s policy rate, jumped 10-fold in the four months ended April from a year earlier, according to the most recent data.
Meanwhile, the average traded volume in members of the KSE-100 equity index dropped 62 per cent in July from a year earlier.