Political crisis eats into foreign funds in stocks

Share selling by foreign investors outstripped purchases for the first time in the last three and a half years, due to weak performance of the stockmarket compared to the developed markets.

Foreign investors sold shares worth Tk 351.91 crore and bought shares worth Tk 319.61 crore last month, according to data from Dhaka Stock Exchange.

The stockmarket is passing through a spell of volatility because of the political crisis, said Kh Asadul Islam Ripon, managing director of Alliance Capital Asset Management.

“Since the developed markets are currently outperforming the frontier and emerging markets, fund managers have reallocated their funds away from Bangladesh and its peer countries to other markets that have higher liquidity and returns,” he said.

“Foreign fund managers require greater liquidity in their target markets, which we have not witnessed recently.”

Also, he said, the average daily turnover of Dhaka bourse has fallen 45 percent in the three months to March from the same period last year.

Unexpectedly, low earnings for certain sectors—such as banks and non-banks that saw very low private and public credit growth—as well as the manufacturing sector have also aggravated the situation, Ripon said.

“However, on a positive note, we have seen earlier that when returns in developed markets decline or slow down, the frontier and emerging markets like Bangladesh see growing momentum.”

The net foreign investment also dropped by 46.75 percent year-on-year to Tk 227.65 crore in the first quarter of this year.

Also known as portfolio investment, foreign investment accounts for less than 1 percent of DSE's total market capitalisation, which stood at Tk 315,949 crore at the closing of yesterday's trading.

Banks are the foreign investors' preferred sector, but non-bank financial institutions, power and energy, pharmaceuticals, multinationals, telecoms and IT also draw their attention.

Investors include fund managers such as Morgan Stanley, JPMorgan, Goldman Sachs and BlackRock.

Net foreign investment was Tk 2,619.79 crore in 2014, up 35 percent from the previous year, according to DSE data.