Foreigners continue to sell Dhaka shares


Nothing seems to have worked to retain foreign investors from portfolio to the Dhaka Stock Exchange (DSE), Bangladesh’s main stock exchange.

Continuing the trend of recent years, foreigners sold more shares in the country than they bought in July and August, according to data from the DSE.

Following the withdrawal of Tk 1,870 crore in fiscal year 2020-21 from Bangladeshi securities, foreign investors withdrew over Tk 380 crore in the first two months of that fiscal year.

In July, foreigners bought shares worth only Tk 51 crore against a sale of over Tk 227 crore, resulting in a net withdrawal of Tk 176 crore.

In August, they bought shares worth Tk153 crore, against their sale of Tk358 crore to withdraw a larger amount of Tk205 crore.

Why?

The liquidation of foreigners has continued throughout the period of market recovery and this is a surprise to many, especially when the capital market regulator is working hard to attract foreign investors.

The Bangladesh Securities Commission (BSEC) this year organized three roadshows to the United Arab Emirates, United States of America and Switzerland to showcase investment potentials in the Bangladesh capital market.

Market insiders said the rise in the stock index could have prompted foreigners to post more profits year on year.

DSEX, the general index of the Dhaka Stock Exchange, rose more than 100% from its March 2020 low to less than 3,600 points to close above 7,300 at the end of September.

The rally was mostly led by mid-grade stocks which are barely owned by foreign funds and many blue-chip stocks they tend to hold underperformed the mean and undesirable stocks.

The wider preference of foreign fund managers could have been a bigger factor behind the massive sell-off, believes Shahidul Islam, CEO of VIPB Asset Management Ltd.

Recently, he told The Business Standard that large foreign investors have moved their investments from different border countries in recent years as they increase their activities in developed markets.

As a frontier market, Bangladesh suffers along with its peers, he said.

The liquidation of foreigners began in early 2018 when analysts worried about the risk of devaluation of the Bangladeshi taka against the US dollar and the increase in non-performing loans in the banking sector.

However, since the Bangladesh Bank managed the exchange rates and the market was down until mid-2020, there had been positive net foreign portfolio investment in fiscal years 2018-19 and 2019-2020. , according to the central bank.

But their total net investment and turnover on the stock exchanges was much lower than in previous years.

And, since the Covid-19 outbreak in early 2020, developed markets, including the United States and Europe, inundated with easy money, have withdrawn huge funds.

A local market analyst who deals with several overseas clients said that foreign fund managers have some unease with the Bangladesh market and regulatory factors are the main ones among others.

“Foreigners believe in the mechanism of the free market. The ceiling or the floor of bank interest rates, the floor price of shares are not part of their regulations,” he said on condition of anonymity.

The banking sector was not in good shape even before the pandemic, and there remains uncertainty about what might happen in the banking sector after the end of the moratorium period, he added.

Bangladesh Bank allows commercial banks not to classify any customers during the difficult time of the pandemic.

“Thank goodness, unlike many peer markets, foreign portfolios do not represent a large part of our capital market,” he said.

The annual withdrawal of investment by foreigners is even lower than the daily turnover of the DSE, he added.

About Troy McMiller

Check Also

Raine Capital LLC buys 1, sells

Raine Capital LLC recently filed its 13F report for the first quarter of 2022, which …

Leave a Reply

Your email address will not be published.