Foreign investors pull out Tk124cr in April as risk-aversion intensifies

The Dhaka Stock Exchange (DSE) witnessed a massive retreat by international investors in April, as a combination of escalating global geopolitical tensions and persistent domestic structural hurdles triggered a wave of heavy selling. 

Data from the premier bourse revealed a stark imbalance in foreign participation, with overseas investors offloading shares worth Tk124.14 crore while injecting only a meagre Tk12.06 crore into the market. 

This lopsided trade reflects a deepening sense of caution among global fund managers, who appear to be scaling back their exposure to frontier markets in favour of safer havens amidst a volatile international landscape, according to the market insiders.

The overall participation of foreign investors saw a dramatic contraction during the month. Total foreign turnover in April stood at Tk136.2 crore, which was exactly 50% lower than the turnover recorded in March. 

This decline in trading volume suggests that foreign institutional investors are not only selling off their positions but are also hesitant to engage in fresh buying, leading to a significant reduction in market liquidity, said insiders.

As per DSE data, foreign investment held in 130 listed companies, out of which foreign investments trimmed in 19 companies, while increases in 14 firms. Foreign participation remained unchanged in 97 firms.

According to the Central Depository of Bangladesh Limited, the number of non-resident beneficiary owner accounts stood at 43,242 as of mid-May.

The sell-off was most pronounced in fundamentally strong, large-cap companies that have traditionally been the darlings of foreign portfolios. Square Pharmaceuticals, often considered a blue-chip anchor for the market, saw the highest volume of foreign exit, with sales amounting to Tk40.72 crore. Consequently, foreign shareholding in the pharmaceutical giant dropped from 15.33% in March to 15.11% in April. BRAC Bank followed a similar trend, with foreign investors trimming their stakes by Tk37 crore, bringing their holding down to 36.22% from 36.48%. 

Other major firms such as Renata, British American Tobacco Bangladesh, Marico, and Grameenphone also experienced notable foreign outflows, reflecting a broader trend of profit-taking or risk-mitigation by international funds.

In a few extreme cases, foreign investors opted for a complete exit from certain entities. During April, international fund managers liquidated their entire remaining holdings in Ring Shine Textile and Premier Bank. Conversely, the market saw a rare entry as foreign investors picked up stakes in Bangladesh National Insurance for the first time. 

On the buying side, BSRM Steels emerged as the only significant beneficiary of foreign interest, attracting Tk9.50 crore in purchases and raising its foreign shareholding from 0.25% to 0.60%. Minor increases were also noted in BSRM Limited, Prime Bank, and Envoy Textile, though these were insufficient to offset the overall exodus of capital.

Market experts and researchers attribute this sharp decline to a complex mix of external and internal factors.

A senior researcher at a leading brokerage firm noted that while there was high optimism following the national elections and the formation of a new government, the expected surge in foreign investment failed to materialise. Instead, the market was blindsided by the sudden escalation of conflict in the Middle East involving the United States, Israel, and Iran. This geopolitical instability has sent shockwaves through global energy markets, creating a climate of economic uncertainty that is particularly damaging for energy-import-dependent nations like Bangladesh.

For global investors, the risk of inflation and energy insecurity in Bangladesh, exacerbated by these international conflicts, has made the domestic equity market appear increasingly risky. These external pressures have compounded long-standing domestic issues that continue to weigh on the market's attractiveness. 

Analysts emphasised that the scarcity of high-quality, well-governed firms forces foreign investors to concentrate their holdings in a very small number of stocks. When sentiment shifts, as it did in April, this concentration leads to rapid and heavy sell-offs that the local market often struggles to absorb.

Furthermore, the prevalence of "junk stocks" and companies with poor corporate governance continues to deter professional fund managers. Issues surrounding transparency, inconsistent financial reporting, and weak regulatory enforcement remain significant barriers to attracting long-term institutional capital, said a managing director of a brokerage firm.

Structural hurdles, including a complex capital gains tax regime and ongoing difficulties in the repatriation of funds, also remain cited as deterrents. While the government and regulators have introduced some policy measures to address these bottlenecks, market participants argue that the impact of such reforms has yet to be felt on the ground, he added.

According to the DSE officials, the persistent foreign sell-off serves as a wake-up call for the country's capital market regulators. As foreign investors shift their stakes from top-tier firms like City Bank, Southeast Bank, Beximco Pharma, and IDLC Finance into defensive positions or out of the country entirely, the pressure on the DSEX benchmark index continues to mount.