Foreigners keep selling Dhaka stocks

Nothing seems to have worked to retain foreign portfolio investors in Dhaka Stock Exchange (DSE), the prime bourse of Bangladesh.

In continuation of the last years' trend, foreigners sold more stocks in the country than they bought both in July and August, according to the DSE data.

Following the withdrawal of Tk1,870 crore in fiscal 2020-21 from Bangladeshi securities, foreign investors pulled more than Tk380 crore in the first two months of this fiscal year.

In July, foreigners bought shares worth only Tk51 crore against their sale of more than Tk227 crore, resulting in a net withdrawal of Tk176 crore.

In August, they bought shares worth Tk153 crore, against their sale of Tk358 crore to withdraw a bigger amount of Tk205 crore. 

Why?

Foreigners' selloff continued over the entire period of the market rally and it is a surprise to many, especially when the capital market regulator is working hard to attract overseas investors.

The Bangladesh Securities and Exchange Commission (BSEC) arranged three roadshows this year in the United Arab Emirates, the United States of America, and Switzerland to present the investment potentials in the Bangladesh capital market.   

Market insiders said the rising stock index might have provoked foreigners to book more profits over a year.

DSEX, the broad-based index of the Dhaka Stock Exchange, rose more than 100% from its 2020 March bottom at below 3,600 points to close at over 7,300 at the end of September.

The rally was mainly led by average quality stocks which are barely held by foreign funds and many blue-chip stocks they tend to hold underperformed the average and junk stocks.

The foreign fund managers' broader preference might have been more important as a factor behind the selloff, believes Shahidul Islam, chief executive officer of VIPB Asset Management Ltd.

Recently, he told The Business Standard that large foreign investors have moved their investments from different frontier countries in the last few years as they increased activities in the developed markets.

As a frontier market, Bangladesh is suffering along with its peers, he said.

The foreigners' selloff began in early 2018 when analysts were concerned about the risk of devaluation of Bangladeshi taka against the US dollar and the rising non-performing loans in the banking industry.

However, since the Bangladesh Bank managed the exchange rates and the market was down until the middle of 2020, there had been some positive net foreign portfolio investments in 2018-19 and 2019-20 fiscal years, according to the central bank.

But their total net investment and trading turnover at the bourses were much lower than the previous years.

And, since the Covid-19 outbreak in early 2020, developed markets, including the US and Europe, being flooded with easy money, drew huge funds back.

A local market analyst who deals with several foreign clients said, foreign fund managers have some discomforts regarding the Bangladesh market and regulatory factors are the major among others.

"Foreigners believe in the free market mechanism. Cap or floor in bank interest rates, floor price in stocks are not in their rule books," he said seeking anonymity.

The banking sector was not in good shape even before the pandemic, and there remains uncertainty regarding what may happen in the banking sector after the moratorium period ends, he added.

The Bangladesh Bank is allowing commercial banks not to classify any client during the tough time of the pandemic.

"Thank god, unlike many peer markets, the foreign portfolios are not a big part of our capital market," he said.

The annual investment withdrawal by foreigners is even lower than the DSE's daily turnover, he added.