DSE foreign turnover slumps as global funds scale back exposure

Foreign investors' trading activity on the Dhaka Stock Exchange (DSE) dropped sharply in 2025, with turnover falling to one of its lowest levels in recent years, reflecting cautious sentiment, year-end portfolio rebalancing and long-standing structural constraints in Bangladesh's capital market.

Data from the DSE and brokerage houses indicate that foreign turnover remained subdued throughout the year, deteriorating significantly towards the end.

Monthly foreign turnover stood at just $5 million as of 15 December, a steep decline compared to $30 million in October and $22 million in November. Earlier in the year, foreign activity showed intermittent strength, peaking at $41 million in May and $40 million in July, but those gains proved short-lived as global investors gradually reduced exposure.

December saw a pronounced sell-off in several heavyweight stocks, contributing to a sharp net decline in foreign holdings. According to the monthly shareholding report, foreign investors sold shares worth around Tk120 crore during the month, while purchases amounted to only about Tk2 crore, resulting in a significant net outflow. Most of the selling pressure was concentrated in a handful of large-cap stocks that traditionally attract foreign interest.

Summit Alliance Port experienced the largest reduction in foreign ownership, with holdings dropping by 3.68 percentage points, equivalent to roughly Tk38 crore. Grameenphone also saw foreign stakes fall by 0.07 percentage points, translating into sales of about Tk24 crore. City Bank recorded a notable decline of 0.64 percentage points, worth Tk25.22 crore, while Square Pharmaceuticals, BRAC Bank and Renata also witnessed moderate reductions in foreign shareholding.

Despite the broader trend of selling, a small number of companies recorded marginal increases in foreign stakes during December. These included Beximco Pharmaceuticals, Prime Bank, National Bank, Orion Infusion, LankaBangla Finance and Orion Pharma, although the absolute value of these increases remained modest and insufficient to offset overall outflows.

Market participants said the recent decline in foreign activity reflects a combination of stock-specific exits and routine portfolio adjustments rather than a fundamental loss of confidence in Bangladesh's equity market. 

Norway's sovereign wealth fund, along with a limited number of UAE- and EU-based institutions, remains among the key foreign players active in the market, according to industry insiders.

A managing director of a leading brokerage firm said foreign investors continue to face constraints due to the limited scope for diversification. Bangladesh has a relatively small pool of investable large-cap stocks that meet the governance, liquidity and risk standards required by global institutional funds. As a result, even modest changes in allocation decisions can have an outsized impact on foreign turnover figures.

Another brokerage chief executive noted that December is traditionally a period of portfolio rebalancing, as foreign institutions prepare year-end financial statements and realign holdings in line with global asset allocation strategies. Such adjustments often lead to temporary outflows from frontier and emerging markets, particularly when investors seek to lock in profits or reduce exposure to perceived risks.

He added that foreign inflows could recover if the country's political and economic situation stabilises further in the coming months.

Analysts also pointed to structural challenges linked to global index inclusion. Many international funds track FTSE equity country benchmarks, and Bangladesh's partial exclusion from these indices continues to weigh on sustained foreign participation. The country was removed from FTSE indices following the imposition of floor prices on stock movements, which disrupted price discovery and liquidity. 

Although the Bangladesh Securities and Exchange Commission has lifted most of those restrictions since early last year, floor prices remain in place for two companies, keeping them outside the FTSE universe.

Currently, total foreign investment in the DSE stands at around Tk13,000 crore, with only about 36% of listed companies having any foreign shareholding. 

In its November 2025 review, MSCI made no changes to Bangladesh's market classification, while 42 DSE-listed companies remain included in the FTSE Frontier Index.