Foreign funds in stocks jump seven times

Net foreign investment in the capital market soared more than seven times year-on-year in 2016, as overseas investors parked more funds in the Bangladesh stockmarket, seen as a frontier and emerging market by many.

Foreign investors bought shares worth Tk 5,057 crore and sold shares worth Tk 3,716.3 crore to take their net investment to Tk 1,340.7 crore in the just concluded year.

In 2015, the net investment by foreigners stood at Tk 185.5 crore, according to data from the Dhaka Stock Exchange.

Analysts said positive macroeconomic indicators, including declining interest rate and stable exchange rate, and political calm boosted the foreign investors' confidence.

The foreign investors' expanding footprints in Bangladesh run counter to the situation in other emerging markets.

For example, foreign investors withdrew about $5 billion from the Indian capital markets in November and $3.5 billion in December amid concerns over the impact of demonetisation coupled with fears of rate hike by the US Federal Reserve, according to media reports.

Also, the recent trend of pulling funds out of the neighbouring stockmarkets including India has created an opportunity for Bangladesh to receive more investment as an emerging market, according to experts.

However, it does not mean that the foreign investors are withdrawing funds from India or other neighbouring markets and then investing in Bangladesh. What is clear is that they are intensifying their focus on the Bangladesh market.

The overseas investors' fresh and increasing position in listed firms also showed their growing trust in the market.

Uttara Bank is an example. Foreign investors did not have any holding in the private commercial bank until December 2015, but now they own 1.47 percent stakes in the bank.

Banks are the foreign investors' preferred sector, followed by non-bank financial institutions, power and energy, pharmaceuticals, multinationals, telecoms and IT.

Foreign investors have the highest holding in Brac Bank with a 41.55 percent stake, up from 35.76 percent a year ago.

Global investment banks such as Morgan Stanley, JPMorgan and Goldman Sachs, and asset management firms such as BlackRock have presence in Bangladesh.

Md Ashaduzaman Riadh, strategic portfolio manager of LankaBangla Securities, said the benchmark DSEX generated 8.78 percent return outperforming US's MSCI emerging frontier market index that registered 2.72 percent return.

Market liquidity also saw a substantial boost at the end of the year, clocking up Tk 494 crore in daily average turnover.

“If we analyse the economic factors, we can say the conditions were very friendly for the foreign equity investors,” Riadh said.

Extreme anxieties that previously persisted on the fiscal, monetary and political fronts did not come back in 2016, which gave huge comfort to foreigners.

“The sustained revival of the foreign interest was backed by rising corporate profitability and increasing consumption level in Bangladesh. Also, the declining interest rate, strong currency and GDP growth of Bangladesh have outnumbered other frontier markets,” Riadh said.

Analysts expect big-cap companies that predominantly attract foreigners will strongly come back with higher growth in top and bottom lines in 2017, and more foreign investors will continue to foray into the market.

Also known as portfolio investment, foreign investment accounts for only 1 percent of the premier bourse's total market capitalisation, which stood at Tk 341,244 crore at the close of trade on Thursday, the last trading day of the year.