Net foreign investment at the Dhaka Stock Exchange (DSE) dropped steeply in February, as foreign institutional investor confidence was spooked by the current political uncertainty.
According to the DSE, the net foreign investment stood at over Tk31.8 crore, sharply down by more than 85% over the month of January. In January the figure was over Tk228 crore.
Analysts said the foreign fund inflows into the stock market had slowed down in the backdrop of the current political situation.
Foreign investors, however, squared their positions on some selective stocks as long-term investment, they said.
Fund managers on behalf of foreign investors purchased shares worth Tk250 crore and released shares worth almost Tk219 crore last month, the DSE data showed.
“Political uncertainty might hold back foreign investment,” said Md Moniruzzaman, managing director of IDLC Investments.
He said the long shutdown has affected the production of companies, raising question over the economic outlook, which might make investors cautious.
“But they are still in the market as it was indicated in their net investment.”
A broker said foreign fund managers from the developed markets would only switch their funds abroad to take advantage of higher returns and would hardly dash for the exit door out of fear of political or economic upheaval.
“When they enter ‘frontier’ markets such as ours, they know the risks,” said the broker.
Foreign investors are not the market drivers of the market as foreign investment in Bangladesh stock market makes up less than 2% of DSE’s total market value and is lowest among South Asian countries.
“So, the concern of local investors was not that foreigners would be stamped out of the market with a flurry of sale orders. This apparently did not happen,” said an analyst.
Fundamentally strong issues like multinational companies, banks, non-bank financial institutions, power and energy, pharmaceuticals, telecoms and IT are foreign investor preferred stocks.
According to the FSG Frontier Market Sentiment Index released in late last month, corporate sentiment towards all three South Asian frontier markets—Sri Lanka, Bangladesh and Pakistan—were among 10 countries that experienced the steepest declines in corporate sentiment. l
Frontier markets are less advanced capital markets from the developing world and countries with investable stock markets that are less established than those in the emerging markets.
The ongoing political standoff surrounding national election has caused extensive damage to the country’s economy.
