Foreign stock investors rebound after Hasina’s fall

After years of a continued meltdown, foreign investor participation in Bangladesh's capital market has made a visible comeback following the end of Sheikh Hasina's 15-year rule through her ouster.

According to data from the Dhaka Stock Exchange (DSE), during the first half of August, stock trading by foreign investors surged by 501%, reaching Tk404.82 crore.

A year ago, from 1 to 15 August, foreign turnover at the country's premier bourse was only Tk67.31 crore.

After Hasina's fall on 5 August, both turnover and indices at the DSE increased considerably, with the benchmark index climbing by 786 points over the four trading sessions up to 11 August.

Infographic: TBS

With the new interim government headed by Nobel laureate Professor Muhammad Yunus taking over, foreign investors gained a significant boost in confidence in the market, according to market stakeholders.

Significantly, foreign share trading in the first half of August has surpassed that of the entire FY24 at Tk262 crore, which was the lowest in the previous five fiscal years.

According to DSE data, turnover by foreign investors in FY19 was Tk8,091 crore, and the figure further increased to Tk9,664 crore in the next fiscal year.

And in the following fiscal years, turnover by foreign investors was on a downward trend, tumbling down to Tk2,954 crore in FY23.

Market insiders say foreign investors had largely remained "inactive" in the stock market due to forex market volatility, the regulator's imposition of floor prices to artificially maintain share prices, and economic instability following the Russia-Ukraine war and the Covid-19 pandemic.

The floor prices tightened previous investments, leading foreign investors to withdraw capital rather than reinvest. However, recently, their participation has increased as they are now investing in fundamentally strong companies instead of selling shares.

This renewed investment significantly boosted transaction volumes in the first 15 days of August, according to market insiders.

Ahsanur Rahman, chief executive officer at BRAC EPL Stock Brokerage – a leading trading firm for foreign investors in the capital market – told The Business Standard, "There has been a significant increase in foreign investors buying shares in the capital market."

"In August, net purchases by foreign investors have been exceptionally high. However, their share sales were much higher in previous months," he added.

Ahsanur Rahman identified four key reasons for the sudden rise in foreign investment: increased confidence in the capital market due to the new government's takeover, banking sector reforms, stability in the forex market, and a decline in share prices of quality companies.

"The new government has implemented positive measures in banking sector reforms, and the volatility in the dollar market has stabilized. These factors have contributed to the growing participation of foreign investors in the capital market," he explained.

Describing the first half of August as very promising for foreign share trading, he predicted that the total foreign share trading for the month will surpass any single month in recent history.

Infographic: TBS

Floor price was the big barrier

Ashequr Rahman, managing director of Midway Securities, told TBS, "In recent years, the floor price has been a major obstacle to attracting new investments in the capital market and has deterred foreign investors from trading shares."

"Foreign investors typically invest with specific targets or timeframes in mind, but when they encounter floor prices that restrict trading, they lose interest, withdraw from the market, and move to the sidelines," he explained.

Rahman also noted that significant fluctuations in the value of the dollar have caused foreign investors to shy away from the capital market, leading to more selling than buying in recent years.

"With the new government in place, investors are now seeing new opportunities and are beginning to invest again," he added.

It is important to note that the Bangladesh Securities and Exchange Commission (BSEC) had imposed the floor price to artificially maintain share prices.

Following the first Covid-19 case in the country, when the stock market hit a multi-year low, the BSEC imposed floor prices on individual stocks in March 2020, preventing their prices from falling below a certain level.

The market began to normalise and was further impacted by the onset of the Ukraine war in February 2022, which triggered a downward trend. On 28 July, 2022, the regulator reinstated the floor price restrictions.

After approximately a year and a half, the floor price for all companies except 35 was lifted on 28 January of this year. Floor prices on shares of Islami Bank and Beximco remain in place, though other companies' restrictions have been lifted in phases.

Ashequr noted, "Foreign investors have largely stayed on the sidelines in recent years, selling shares and holding onto their funds. They now see opportunities and are increasing their investments, believing that blue-chip companies offer good returns."

Regarding capital market activity, he added, "Many investors have been unable to send money abroad due to the dollar crisis. With the new government in place, confidence is returning, leading to reinvestment."

He expressed the hope that if the country's economic situation stabilises and the dollar market remains steady, foreign investment in the capital market will increase.