Net foreign investment in Dhaka Stock Exchange tipped into negative territory for the first time in eight years last fiscal year as overseas investors sold more stocks than they purchased.
Analysts attributed the fall to the depreciation of the local currency against the American greenback and regulators’ sudden decision aimed at listed companies.
The net foreign investment dropped to Tk 183.70 crore in the negative in 2018-19 after foreign investors bought shares amounting to Tk 4,017.81 crore and sold issues worth Tk 4,201.51 crore.
In 2017-18, the investment was Tk 71.76 crore in the positive, data from the DSE showed.
“The main reason for the slump in foreign funds is the depreciation of the local currency,” Mohammed Rahmat Pasha, managing director of UCB Capital, told The Daily Star.
He said the devaluation of the taka prompted the foreign investors to sell shares in order to book profits. Due to the depreciation, foreign investors will have to make more profit to get the same amount of the USD they would have received if the taka did not fall, he added.
On July 10, the exchange rate was Tk 84.50 per USD, up from Tk 83.50 on the same day a year ago, Bangladesh Bank data showed.
Foreign investors think that the taka will come under pressure because of the widening deficit in the balance of payments and huge foreign debt, according to brokerage houses that deal with external portfolio investment. Investors anticipate a further depreciation of the taka as the central bank is artificially preventing the devaluation of the currency. The overall balance of payment stood at $682 million in the negative during the July-May period of 2018-19, which was $970 million in the negative year-on-year.
Bangladesh received $5.7 billion in medium and long-term foreign debt in 2017-18, up from $3.2 billion a year ago. A top official of another brokerage house blamed some of the sudden regulatory moves aimed at listed companies that spooked the confidence of foreigners.
The finance minister imposed tax on stock dividend and retained earnings of listed companies out of the blue while unveiling the budget for the current fiscal year on June 13. Earlier, Bangladesh Telecommunication Regulatory Commission declared Grameenphone, the largest listed company in the country, as the operator with significant market power in an attempt to enhance competition in the industry.
To this effect, the regulator has already taken some decisions that will squeeze the business of the leading mobile phone operator.
The BTRC’s decision came in February and the foreign investors’ investment has been declining since March.
Brokers say foreign investors sold not only the stocks of Grameenphone but also those of other companies as they lack confidence.
This was not the first time regulators’ sudden moves against listed companies have hurt stocks.
In 2015 Bangladesh Energy Regulatory Commission cut the distribution charge for Titas Gas. As a result, the utility company lost more than Tk 3,000 crore in market value over a period of five months.
“Any sudden decision dents investors’ confidence,” said the brokerage house official, adding that there was a lack of coordination among the regulators. In order to attract foreign investors, Pasha recommends bringing good companies to the market and ensuring coordination among all the regulators.
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