Home ›› 28 Feb 2023 ›› Stock
The presence of the foreign equity investors in Bangladesh’s capital market has long been in a vanishing way but their exodus got intensified in January this year.
They were now pulling out their funds to a large extent, according to analysts, due mainly to shun losses from the currency exchange rate volatility caused by the ongoing Russia-Ukraine war.
The outflow of foreign stock investment from the Dhaka Stock Exchange (DSE), the country’s premier bourse, stood at Tk 135 crore in January this year against an inflow of only Tk 21.26 crore in the same period.
The overseas investors in December last year, sold securities worth Tk 101 crore against their purchases of Tk 36 crore worth of shares.
The securities regulator BSEC, market insiders say has been continuing the floor price system for a long time, which is preventing foreign equity investors from buying and selling shares of companies with sound fundamental base.
But they are now selling shares in the block market after getting the opportunity, they added.
Besides, the currency volatility caused by the Russia-Ukraine war was also a prime cause that stimulated foreigners to offload shares from the capital markets of developing countries like Bangladesh, they continued.
Talking to The Business Post, Shakil Rizvi, director and former president of the Dhaka Stock Exchange said, “Foreigners do not come to rescue us. They invest for making profits. As the price of the US dollar is now unstable, they are now withdrawing funds from Bangladesh.”
“They can return to our capital market once the currency exchange rates get stabilized,” he added.
Meanwhile, the US Federal Reserve recently raised its main interest rate by 75 basis points—the biggest increase since 1994—to a range of 1.5–1.75 per cent to tame inflation.
As American inflation recently hit 8.6 per cent, a 40-year high, the US Federal Reserve went for that massive hike, it posed negative impacts on portfolio investments in Bangladesh’s capital market.
Market insiders said Bangladesh’s stock market was no longer lucrative to foreign investors due to multiple factors, including the currency devaluation and the US rate hike.
Moreover, the Bangladesh Securities and Exchange Commission’s initiatives, and roadshows in several countries to bring in investments, also appeared to have produced no significant positive outcome, they commented.
Abu Ahmed, a stock market analyst and a former professor of the University of Dhaka, said, “Most listed companies in Bangladesh lag much behind in terms of good governance. Sponsors and directors of many companies here often trade shares anonymously, a breach of the securities laws.”
“Moreover, some companies tend to prepare false financial reports. And all these issues are playing significant roles to wipe out foreign equity investors,” he added.
To lure more foreign funds, this veteran professor outlined some structural and policy-related initiatives which include attracting more good companies into the capital market, simplifying the listing process, and bringing in the government and multinational companies into the market.
The volatility and high risks in the market might provoke foreigners to take their funds to safe havens, stock market experts think.
They also said the constant foreign fund exodus put a heavy toll on the DSE, as the bourse has long been suffering from a liquidity crunch.
The net foreign equity investment in the DSE, according to a top stock broker, has been negative for four years in a row due to the volatility in the country’s financial market as well as interest rate ceiling on bank loans, floor price restrictions, and a better trend in developed markets.
Capital market analyst and Dhaka University’s Associate Professor Al Amin said foreign investors always invest in companies with good fundamentals. But shares of most blue-chip companies remained stuck at their floor prices in Bangladesh. If there was no floor price system, the market trend might be better than that of now.
This associate professor called for ensuring good corporate governance, and transparency in the financial statements of listed companies to protect the investors’ rights.
According to IDLC Finance’s monthly business review published in August 2022, foreign ownership stood at 3.9 per cent of the total equity market capitalisation on DSE at the end of June that year, dipping below a mark that had not been recorded since 2015.
Among all the listed companies with foreign ownership, Brac Bank had the highest foreign shareholding of 36.1 per cent until June 2022, followed by Beximco Pharma with 28.6 per cent.
Olympic Industries ranked third with 25.7 per cent foreign ownership, followed by Renata Ltd with 22.9 per cent, Islami Bank with 20.6 per cent, Delta Brac Housing Finance Corporation with 19.3 per cent, BSRM with 17.5 per cent, Square Pharma with 13.9 per cent, Ring Shine Textiles with 10.2 per cent, and Shepherd Industries with 9.4 per cent.
According to the Bangladesh Bank data, the United States-based investors accounted for about $800 million in portfolio investments in Bangladesh’s stock market in June last year, which was 53 per cent of the total foreign investments.
The data showed that the balance of foreign investments in the country’s capital market plunged to $1,506 million in the financial year 2021–22 from $1,908 million in FY21.
