Foreign stock investors keep pulling out funds

Foreign investors pulled more money out of the stock market in the first four months of fiscal year (FY) 2025-26, as political uncertainty made them cautious about putting fresh funds into shares.

Net foreign investment in listed stocks stood at minus $66 million during the July-October period, according to Bangladesh Bank (BB) data, meaning overseas investors sold more shares than they bought.

In the same four-month period a year earlier, net outflows were much smaller at minus $9 million.

Market insiders say concerns over the financial sector have added to uncertainty around the country's political landscape.

Saiful Islam, president of the DSE Brokers Association of Bangladesh (DBA), said foreign investors are worried that stress in parts of the banking sector could spread more widely.

He said only four to five banks are relatively stable, while the rest are under pressure. This has weakened confidence in financial stocks.

The central bank is merging five listed banks after their conditions were found beyond repair. The BB is also working on liquidating nine non-bank financial institutions, eight of which are listed. These developments have added to investor nervousness.

At the same time, Islam said high inflation has hurt consumer spending, limiting the earnings potential of consumer goods companies and reducing their appeal to foreign funds.

According to him, foreign investors have also found limited reasons to stay in the market due to a lack of new and attractive companies.

"Some listed firms are performing reasonably well, but many have weak dividend records," said Islam, also a director of the BRAC EPL Stock Brokerage.

Most of all, no large, well-run companies have entered the market in recent times, which could draw fresh foreign interest, he added.

In the last one year, no initial public offering (IPO) has been approved, although the chief adviser of the interim government in May asked the authorities for listing state-owned enterprises.

Islam, whose brokerage house deals with foreign investments, also pointed to poor communication and weak governance at many listed firms.

Foreign investors often do not get timely updates or meaningful access to company management, which discourages long-term

investment.

Meanwhile, some other market operators say foreign investors are cautious partly because of earlier policy moves that disrupted trading.

Mohammed Rahmat Pasha, chief executive and managing director of UCB Stock Brokerage, said the political atmosphere around the next national elections is a key concern.

"Until a democratically elected government takes charge, most long-term foreign investors prefer to stay away," he said, citing fears of unrest and sudden economic disruptions.

According to Pasha, investors are also still wary after the imposition of floor prices in 2020 and again in 2022, which kept prices artificially high. The policy made much of the market illiquid, as many shares became hard to trade.

As a result, foreign investors faced losses and compliance issues with their own regulators, who discourage investment in illiquid markets, said the UCB Stock Brokerage MD.

He said that although floor prices were lifted after the new commission took office in August last year, confidence has yet to fully return.

The BB data show foreign investors pulled out $150 million from the stock market in FY 2024-25. The outflows in FY 2023-24 amounted to $343 million.

Brokers say many foreign funds now see value in several stocks at current prices, but cheap valuations alone are not enough.

According to them, a steady return of foreign investment will depend on political stability, predictable market rules, better company governance and a pipeline of quality new listings.

Brokers said market participants said if a credible election is held and policy direction becomes clearer, foreign investors are expected to come back gradually rather than in one rush.