Foreign investors return to Dhaka stocks as reforms, MSCI move lift confidence

Infographic: TBS

Foreign investors are showing renewed interest in Bangladesh's stock market in September, with their purchases exceeding sales and signalling a tentative shift in sentiment after years of sustained withdrawals from the country's capital market.

Foreign investors bought shares worth around Tk250 crore and sold about Tk180 crore between 1 and 24 September, leaving a net investment of roughly Tk70 crore, according to Dhaka Stock Exchange (DSE) data.

The latest figures come after a prolonged period of weak foreign participation, which market insiders attributed to regulatory intervention, political uncertainty, geopolitical instability, currency depreciation and difficulties in repatriating funds.

A managing director of a brokerage firm said the Dhaka bourse was finally seeing an increase in foreign investment in September after a long period of selling pressure.

"Following the national election and the formation of the new government, regulatory easing and commitments from government authorities have helped attract foreign investors back to the capital market," he said.

The buying trend has been visible on most trading days this month. Foreign investors bought more shares than they sold on 13 trading days between 1 and 24 September, while selling exceeded buying on only two days, according to DSE data.

Market participants said the removal of the floor price, along with a series of regulatory reforms, has helped improve the investment environment.

A senior DSE official said the new securities regulator under the BNP-led government had removed the floor price and introduced several measures aimed at making the market more flexible.

The Bangladesh Securities and Exchange Commission (BSEC) has also revised initial public offering rules and drafted direct listing rules for fundamentally sound companies and foreign companies seeking to list on the local exchange. The regulator has revised margin rules, signalling a move towards easing regulatory hurdles.

"The BSEC has also assured market participants that it will not interfere in the market unnecessarily," the DSE official said, describing the changes as a positive development for the capital market.

Another factor supporting foreign investor sentiment is the planned return of Bangladesh to the regular review process of global index provider MSCI.

MSCI said in its August Equity Index Review that it would resume the implementation of index review changes and corporate events for the MSCI Bangladesh Indexes from the November 2026 index review. The decision marks a move towards normalisation after MSCI placed Bangladesh under "special treatment" in 2023 amid disruptions associated with the floor price mechanism.

MSCI's special treatment mechanism allows the index provider to modify or suspend its standard review procedures for markets or securities facing significant disruptions. The resumption of regular reviews is therefore being viewed by market participants as a step towards restoring Bangladesh's standing among international portfolio investors.

Regulatory changes by Bangladesh Bank (BB) have also reduced some of the operational hurdles faced by overseas investors.

In March, the central bank raised the threshold for prior approval of capital repatriation by foreign investors to Tk100 crore from Tk10 crore. The measure was intended to simplify the repatriation process and bring the regulatory framework closer to international practices.

BB subsequently removed another major compliance hurdle by scrapping the requirement for an auditor's certificate for every transaction by non-resident investors.

Under the new arrangement, authorised dealer banks can deduct or withhold applicable taxes on capital gains directly from the sale proceeds of shares or securities held by non-resident investors. The proceeds can then be credited to the investors' Non-Resident Investor Taka Accounts, or NITAs, before payment of the applicable taxes to the government.

Previously, investors were required to obtain a chartered accountant's certificate for individual transactions to determine capital gains tax before proceeds could be reinvested or repatriated. Market participants said the process often caused delays and increased compliance costs.

The improvement in September follows fluctuating foreign participation throughout the year. Foreign turnover stood at Tk663 crore in February, before falling to Tk272 crore in March, Tk175 crore in April and just Tk73.92 crore in May. It then increased to Tk540 crore in June and Tk523 crore in July before declining to Tk318 crore in August. Foreign turnover reached around Tk400 crore in the first 24 days of September, according to DSE data.

Despite the recent improvement, foreign participation remains relatively small compared with the overall size of the market. Foreign investment in Bangladesh's stock market currently stands at around Tk13,000 crore, while only about 132 of roughly 360 listed companies have some level of foreign shareholding.

BRAC Bank has the highest foreign ownership among listed companies at around 35%, followed by Olympic Industries with more than 25%. Beximco Pharmaceuticals, Navana Pharmaceuticals, Square Pharmaceuticals and Renata are among the other companies with significant foreign shareholdings.

According to the Central Depository of Bangladesh, the non-resident accounts (Beneficiary Owners Accounts) stood at 41,937 at the end of 24 September.