Foreign funds dry up at Dhaka bourse amid political, regulatory jitters
Foreign turnover dropped from $40m in July to just $10m by mid-Nov
Foreign investor participation at the Dhaka Stock Exchange (DSE) has plunged sharply in recent months, with November's turnover (up to 15 November) dropping to just $10 million – one of the lowest monthly tallies in recent years – reflecting deepening concerns over Bangladesh's political, macroeconomic, and regulatory environment.
Data from the bourse shows a consistent fall in foreign turnover since July, when foreign trades amounted to $40 million. The figure slid to $31 million in August, recovered slightly to $36 million in September, and dipped again to $30 million in October.
The steep fall in November underscores a growing reluctance among foreign portfolio investors to deploy fresh funds in Bangladesh at a time of heightened uncertainty, analysts say.
A managing director of a leading brokerage firm, requesting anonymity, told TBS that foreign investors have remained largely defensive. Persistent political tensions, coupled with a sluggish economic recovery and rising input costs, have contributed to their cautious stance.
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"Overseas investors want stability, predictability, and assurance that policies will remain consistent under an elected government," he said. "In the absence of these signals, they reduce exposure instead of increasing it."
He added that many international investors chose to realise gains ahead of the year-end, a typical trend in frontier and emerging markets, though this time the sell-off was intensified by anxiety surrounding the national election and ambiguities created by recent regulatory actions.
"The broader economic activity is yet to rebound. Profit margins of many large-cap companies have remained suppressed due to high costs and supply chain strains. This has kept valuations from looking attractive despite the correction in share prices," he added.
The limited availability of quality, investable stocks remains a structural challenge for foreign funds seeking diversification. Frequent policy adjustments, including recent changes to margin rules, have created additional hurdles.
Analysts point out that Bangladesh has not seen a significant new listing on the premier bourse in almost two years, reducing the opportunities for global investors to accumulate long-term positions.
Foreign shareholding patterns in major listed firms have also shown marginal declines in recent months. Data compiled from the DSE reveals that foreign ownership in Square Pharmaceuticals edged down from 14.86% in October to 14.60% in November. Prime Bank, another foreign-favoured stock, saw its overseas holding drop from 7.14% to 6.71% over the same period.
Grameenphone experienced a slight decline in foreign ownership, while Olympic Industries, Beximco Pharmaceuticals and BRAC Bank remained relatively stable, with only minor fluctuations.
Market analysts say these adjustments indicate portfolio rebalancing rather than an outright exit, but the broader trend remains weak.
DSEX performance is poor among peer countries
Bangladesh's performance also lagged regional peers in November. The DSEX lost 2.80% month-on-month, closing at 4,978 points, making it one of the weaker performers among Asian frontier and emerging markets.
In contrast, Indonesia's IDX Composite advanced 4.22%, Vietnam's VN30 gained 2.05%, India's Sensex rose 2.11%, and Pakistan's Karachi 100 surged 3.12%.
Only a few markets — such as China, Sri Lanka, and South Korea — showed negative momentum, but even then, their declines were less severe than Bangladesh's.
Analysts say this comparative underperformance is likely to further depress foreign interest in the near term.
In its monthly market commentary for November, EBL Securities observed that the capital market had extended its losing streak for a third straight month as local investors remained nervous about the implications of revised margin loan rules, political instability, and ongoing restructuring in banking and non-bank financial sectors. These factors collectively drove market participants toward a defensive posture, resulting in thinning turnover and muted price action.
The month began with particularly weak sentiment, triggered by media reports suggesting that the share values of five liquidity-starved Islamic banks had been effectively nullified by the central bank due to their financial distress. This development rattled the market, as retail investors feared spillover risks into other financial institutions. Confidence was further undermined when uncertainty grew over the newly enacted margin rules, which investors perceived as potentially disruptive for short-term trading strategies, according to the EBL Securities.
As a result, the DSEX tumbled to as low as 4,703 points during a single trading session — its lowest in five months — before bargain hunters cautiously re-entered the market. These buyers sought opportunities in heavily discounted stocks, particularly those with strong fundamentals and relatively low price-earnings ratios. Some optimism also stemmed from the anticipated central bank liquidity support for the Investment Corporation of Bangladesh (ICB), which historically has provided stability during periods of market stress.
However, EBL Securities noted that such bargain-hunting activities were insufficient to counter the overarching pessimism gripping the market. Although certain institutional investors selectively accumulated positions, the broader investment community continued to wait on the sidelines, hoping for clarity on both political developments and regulatory policies before re-entering the market in meaningful volumes. This dynamic contributed to a 14% month-on-month decline in average daily turnover, further reflecting the subdued trading environment.
