Foreign investors reluctant despite regulator’s efforts

Foreign investors' participation in the country's equity market has witnessed a continuous fall as many frontier market investment funds have been closed and some big funds have withdrawn the money for investing in developed countries.

This has happened when the Bangladesh Securities and Exchange Commission (BSEC) has been trying to attract foreign investors to the capital market by conducting roadshows abroad since early this year.

In fiscal 2020-21, foreign investors withdrew equity investment of Tk1,870 crore from the capital market, while they invested Tk2,346 crore a year ago. In that financial year, foreign transactions were Tk8,432 crore, which was 13% lower than the previous year.

The falling trend continued in August this year, too. Foreign investors traded shares worth Tk195.51 crore during 1-15 August this year at the Dhaka Stock Exchange (DSE), which was 57% lower than the previous year at the same time. But the DSE did not disclose foreign transactions and net investment for the last few months as it had disclosed it officially till 2020.

Shahidul Islam, chief executive officer of VIPB Asset Management, told The Business Standard, large foreign investors have moved their investments from different frontier countries in the last few years as they increased activities in the developed market. As a frontier country, Bangladesh is suffering along with its peers.

He also said, besides large investors, some fund managers have closed their offices in less developed countries like Bangladesh.

Regulator's effort

BSEC organised two roadshows in the United Arab Emirates and the USA for highlighting the country's economic outlook and prospects for attracting more investment by foreigners and non-resident Bangladeshis (NRBs) in order to make the country's capital market more vibrant.

In September, the securities regulator is going to arrange another roadshow in Switzerland.

Explaining the purpose of holding roadshows in foreign countries, BSEC Chairman Shibli Rubayat-Ul-Islam told TBS, "Many NRBs don't come to the capital market. They are not aware of the investment prospects of remittances in the capital market. For this reason, they will be encouraged to invest here."

The VIPB Asset Manager chief said the securities regulator's moves are covering macroeconomics. Such moves also help the country's capital market attain foreign investments.

"If the country bounces back from the pandemic shocks and enhances the corporate governance, then we will receive foreign funds," he further said.

The commission is going to launch more new products in the capital market to reduce equity dependence. It said four such products – derivatives, green bonds, sukuk and exchange traded funds (ETFs) – are coming soon.

The regulator has recently issued a policy on opening digital booths to ease foreign investment in the capital market. With the opening of digital booths abroad, foreigners and NRBs will be able to easily invest in the capital market of Bangladesh. This will increase the flow of foreign money in the capital market.

Recently, Dawn Global launched the Asian Growth Cubs ETF listed on the New York Stock Exchange (NYSE) focusing on public equities in five emerging and frontier growth markets, including Bangladesh.

DSE performance

The ratio of the DSE market capitalisation to the country's gross domestic product (GDP) has remained very low compared to other countries.

The ratio of DSE market capitalisation to GDP was 18.39% on 30 June 2021, which was 12.30% in the previous year.

The total market cap of the DSE stood at Tk5.63 lakh crore as of 2 September 2021.

Ten largest listed companies from telecom, banking, pharmaceutical, and textile sectors accounted for over 40% of the Dhaka bourse's total market capitalisation. About 341 companies are trading on the premier bourse.

Over the last two years, the key index DSEX of the DSE has grown significantly following the entrance of some new companies and regulatory reforms.

The index started in 2020 with 4453 points and after more than one and a half year later on Thursday, it closed at 6.981 points.