Home ›› 10 Apr 2023 ›› Stock
The net foreign portfolio investments in companies listed on the Dhaka Stock Exchange (DSE) hit the lowest level in eight years in February 2023, as investors wanted to shun losses from the volatility on the currency exchange rates caused by the ongoing Russia-Ukraine war.
As on February this year, total foreign equity ownership stood at 3.7 per cent of the total market capitalisation, dipping below a mark that has not been recorded since 2015, according to a monthly business review conducted by IDLC Finance.
The foreign ownership of the equity market capitalisation had reached its peak level at 6.8 per cent in 2019 in the given period.
The outflow of foreign stock investments from the 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 DSE market cap stood at Tk 7,58,510 crore on Sunday. The market capitalisation is calculated by multiplying the total number of a company’s outstanding shares with the current market price of its shares.
Till February this year, foreign portfolio investors showed immense interest in the domestic pharmaceutical sector due to the growing demand for drugs and good governance in pharma companies.
Among the listed companies with foreign ownership, Brac Bank Ltd had the highest foreign holdings of 33.5 per cent till February 2023, followed by Beximco Pharma with 29.2 per cent.
Besides, Navana Pharma, Renata Ltd, and Square Pharma were among the top ten companies having the highest foreign shareholdings.
The companies that manufacture hygiene products logged healthy profits over the last decade, as per analysts’ data. Especially during the pandemic, their profits got skyrocketed, as per an analysis carried by The Business Post.
However, investors were advised to exercise caution in placing their bets on the stocks, as the current growth phase might not happen in the future.
Bangladesh’s pharmaceutical products were exported to 199 countries, generating over $180 million in turnover in FY22. The sector meets 97 per cent of domestic demand, worth around $3.5 billion.
Meanwhile, foreign investors’ investments accounted for 11.80 per cent of the total pharmaceutical sector’s market capital on the Dhaka Stock Exchange.
Market insiders said pharma companies witnessed amazing returns in recent years, with the pandemic paving the way as they made record profits and declared the highest ever dividends in the last two fiscals.
Experts have attributed the higher growth of pharmaceutical firms to the rising demands for hygiene drugs in both the local and foreign markets due to the culture shock during the pandemic.
Market insiders say the securities regulator, the BSEC, 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 fundamentals.
But they were 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.
Speaking 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 to make 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 stabilise,” 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 at 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 in wiping 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 an interest rate ceiling on bank loans, floor price restrictions, and a better trend in developed markets.
