Foreign investors turn back on DSE as second wave looms

Foreign investors' participation in Bangladesh's stock exchanges has been on the decline for the last several months as the second wave of the pandemic started taking its toll on global markets.

Foreign participation accounted for 3.09 per cent of the total transactions at the Dhaka Stock Exchange (DSE) in October, down from 4.36 per cent the month before and 5.20 per cent in August, according to DSE data.

In October, foreign investors' transactions dropped 47 per cent to Tk 512.16 crore from Tk 971 crore in the previous month.

DSE's turnover also experienced a fall, hitting Tk 17,039 crore in October from Tk 22,257 crore in September.

"As the pandemic intensified, the foreign investors started shutting down their offices again," said Mohammad Rahmat Pasha, managing director of UCB Capital Management.

Besides, due to economic uncertainty, the foreign investors have adopted a wait-and-see strategy, Pasha said.

December is usually a holiday period for most other countries and so foreign participation tends to be low at this time, Pasha also said.

They normally trade between January and November, he said.

"Setting up of floor prices of shares and a complete halt of trading due to a countrywide shutdown for coronavirus in March might have panicked a section of foreign investors," said Khairul Bashar Abu Taher Mohammed, CEO of MTB Capital.

Meanwhile, foreign investments in a blue-chip non-bank financial institution got withdrawn when the company changed its CEO, he said, requesting not to mention the company's name.

Foreign investors' participation is an important performance indicator for a market, he said.

"Although the amount of foreign investment in the company was not that big considering the whole market, but local investors lose their confidence because of such an incident."

Foreign participation began its downward spiral at least one year ago, when they witnessed telecom regulator's tussle with Grameenphone over a tax issue, said a merchant banker preferring anonymity.

The number of well-performing companies where foreign investors invest is less than 1 per cent of the DSE's total listed companies.

Moreover, the government tends to take sudden decisions on a company that could impact its business, he said, citing the Grameenphone, British American Tobacco Bangladesh (BATBC) and Titas Gas cases.

The Bangladesh Telecommunication Regulatory Commission had announced Grameenphone a significant market player in February 2019, which ultimately had an impact on the company's competitiveness.

Likewise, the government imposed a tax in 2018-19 on low segment cigarettes, which subsequently affected BATBC's earnings.

On the other hand, the service charge of Titas Gas was suddenly reduced in 2015, which ultimately decreased the listed gas distributor's earnings.

"So foreign investors considered the market as risky for big investments and started taking back their money," the merchant banker said.

When Covid-19 started to spread worldwide, the selling of local shares by foreign investors intensified, he added.

Net foreign investment at the DSE plunged by Tk 1,399 crore in 2019-20 after slumping by Tk 184 crore in the previous year. This is highest ever net foreign sell in DSE history.

In the previous eight fiscals, the DSE had witnessed a rising trend in net foreign investment.

Meanwhile, local investors' participation was more or less influenced by the appointment of a new commission, not by the pandemic, the merchant banker said, adding that local investors' participation rose despite the Covid-19 fallout.

On the other hand, the low prices of shares attracted many local investors, but foreigners did not feel the same.

In the last fiscal year, foreign investors sold shares worth Tk 5,543 crore against their purchase of Tk 4,144 crore, DSE data shows.