KARACHI - The continued foreign participation supported the local stock market during the outgoing year, as the net foreign buying in the market increased to $0.5 billion this year compared to net buying of only $24 million in 2009. Foreigners bought $1.2 billion and sold $0.7 billion in 2010, according to a latest report of Topeline Research. The report predicted that foreign flows will remain robust over the next year due to ample liquidity in the global markets for high risk emerging and frontier countries. With Pakistan market trading at 50 per cent discount to regional market on PE multiples against historical average discount of 30 per cent will compel offshore investors to focus more on Pakistan than other regional markets for better returns amid new phase of quantitative easing (QE2). The report stated that the local investors remained bearish on the market due to liquidity crunch amid huge borrowing by the government. High government borrowing is crowding out private investment in Pakistan and local investors prefer to park their funds in risk free government papers or high yielding bank deposits. In 2010YTD, local companies sold shares worth $168 million on net basis whereas local mutual funds sold $127 million aworth of shares, it said. The report revealed that offshore funds now hold shares worth $2.9 billion as of December 17, 2010 which is 8 per cent of the market capitalization and 31 per cent of free float. At the beginning of 2010, their share in overall market cap was 6 per cent and 23 per cent of market free float. Their peak holding was $5.1 billion (27pc of free float) in April 2008 and lowest was $1billion (17pc of free float) in March 2009. With no big IPOs in the near future, foreigners share in local bourses will continue to increase. The report mentioned: "Individual participation declined in 2010. With imposition of capital gain tax, individuals who mostly square their position within a day their average share in December 2010 dropped to 45 per cent compared to approx. 57 per cent in January 2010. However, during this period foreign participation increased to 6 per cent as compared to only 3 per cent at the beginning of the year"