Carry trades escalate to USD328mn in 3 months
Given high interest rate environment (current policy rate at 13.25%) and a stable currency since July 1, 2019, carry trades have been picking up pace in Pakistan. To put things in perspective, the country has witnessed a net foreign inflow of USD328mn in T-bills (1st Jul’19 - 27th Sep’19).
So far these carry trades have only attracted inflows from US (USD290mn) and UK (USD38mn) in past three months.
Carry trade refers to investors borrowing at lower cost in their local markets and invest at higher rates abroad. Pakistan’s debt market provides a prime opportunity to carry out the same with yields in the mid-teens and low exchange rate volatility.
Looking for precedence, we find that Egypt attracted significant flows post approval of IMF program in Nov’16. Portfolio inflows swelled to USD16bn on the back of these carry trade flows in 2017 after seeing outflow of USD1bn previous year. Even now, Egypt continues to be lauded as a key destination for carry trades.
The quantum of carry trades that may make its way to Pakistan remains to be seen but we wouldn’t be surprised if up to USD2bn is mobilized on this front in the short-to-medium-term. This will help build foreign exchange reserves, which are currently only USD8.5bn (2 months of import cover).
BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.
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