The net foreign portfolio investments in companies listed on the Dhaka Stock Exchange (DSE) hit an eight-year low in December 2023, as investors wanted to shun losses from the volatility surrounding currency exchange rates, triggered by the ongoing Russia-Ukraine war.
Until December last 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. Foreign equity ownership was the same in February 2023, according to a monthly business review conducted by IDLC Finance.
The foreign ownership of equity market capitalisation had reached its peak at 6.8 per cent back in 2019.
Meanwhile, foreign portfolio investment dropped by over 20 per cent year-on-year to $2.33 billion in FY23, from $4.5 billion recorded in FY19.
Market insiders say the foreign portfolio investment slumped mainly due to a lack of governance, the depreciation of Taka, and the setting of floor price.
Portfolio Investment (equity securities) stock position classified by major sectors arranged in descending order of magnitude was – Pharmaceuticals and Chemicals: $580.00 million, or 42.1 per cent, Bank, Financial Institution, Insurance and Mutual Fund: $271.15 million or 22.5 per cent, and Food and Allied: $195.79 or 16.2 per cent of total investments.
At the end of June 2023, the share of portfolio investment stock classified by major countries, arranged in descending order of magnitude, was – United States of America $629.71 million, or 52.2 per cent, Luxembourg $144.94 million, or 12 per cent and United Kingdom $135.01 million or 11.2 per cent of total foreign portfolio investments.
In a surprising incident, American investors withdrew a chunk of their funds from the Bangladeshi stock market in the months following the market regulator’s roadshow in the United States of America last year.
The DSE market cap stood at Tk 7,62,816 crore on Wednesday. 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 December of the last 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 30.02 per cent till December 2023, followed by Beximco Pharma with 28.9 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 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.
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.
On January 18, after the session's closing bell, the stock market regulator issued an order rescinding the floor price for all listed companies and mutual funds, except for 35 companies' shares, complying with a long-standing demand from stakeholders.
On July 28, 2022, the BSEC imposed floor prices on all securities to prevent shares from falling beyond a certain level amid domestic and global macroeconomic strains.
