A stable Taka-Dollar exchange rate and the slump in share prices lured foreign funds to the Bangladeshi stock markets, according to them.
Former finance adviser of a past caretaker government, Mirza Azizul Islam said that the trend seemed to be positive but warned that the market might crash if the funds were withdrawn.
According to central bank’s figures, foreign portfolio investments worth Tk 25 billion came during the first 6 months of the ongoing fiscal, a rise by almost Tk 2 billion over the investments during the entire previous fiscal.
The Jul-Dec period of the 2013-14 fiscal saw inflow of $ 310 million foreign funds in the stock markets. It was $ 116 million during the same period in the previous fiscal.
The 2012-13 fiscal saw $287 million foreign portfolio investment in the markets, while during 2011-12 it was $240 million.
Market participators say that the inflow of foreign funds in the markets is on the rise in recent times.
“Almost every day we see new foreign entities investing in the Bangladeshi market,” said Md Munir-Uz-Zaman, the top official of IDLC Investments Ltd.
According to him, the rise in foreign investments boosted the confidence of the local investors.
The benchmark index of the Dhaka Stock Exchange surged by almost 300 points since the Jan 5 polls with a daily average turnover of Tk 7 billion.
“Share prices, including those of banks and other fundamentally sound companies, had slumped. Moreover, we managed to keep the foreign exchange rate stable for quite some time which attracted foreign funds,” said Zaman.
“It’s healthy for any stock market to have 4-5% foreign portfolio investment.
“There were almost no foreign funds in the market following the crash of 2009-10. It started to trickle in from the beginning of the last year (2013),” said Islam, a former finance adviser.
According to him, crash of many other stock markets in the world and a stable Taka-Dollar exchange rate attracted foreign portfolio investors.
US dollar was traded at Tk 77.75 on Thursday. The rate has been ‘stable’ in the last 10 months, according to the Bangladesh bank.
On the other hand, the Indian Rupee has lost by over 4 percent against the US dollar in the last 6 months.
According to the statistics of the Reserve Bank of India, US dollar was traded at Rs 62.02 on Thursday. On June last year it was at Rs 59.10. It rose to Rs 68.50 in Aug 2013.
Mirza Aziz, however, says that there’s a need to be cautious over the sudden rise in foreign portfolio investments.
“Mind it that, the crash in 1997-98 in the markets of Indonesia, Korea and Thailand was caused by these ‘mobile’ (short-term) foreign investments.”
Mirza Aziz finds the recent foreign funds coming in to the Bangladeshi markets as ‘mobile’, meaning that foreign investors are here to make some quick money.
He advised the government, regulator and the bourse authorities to be cautious so that when the foreign funds are withdrawn it doesn’t leave an adverse impact on the market or no one can use this as a ‘rumour’ to manipulate the market.
He, however, says that the market might not be in any major risk as the export earnings, forex reserve and remittance inflow is at a satisfactory level along with no signs of the dollar weakening.
According to the Dhaka Stock Exchange (DSE), foreign investments worth Tk 20 billion came in 2013, which was Tk 8 billion in 2012, a rise of 145 percent.
Foreign investors traded shares worth Tk 33.61 billion in 2013. Of which, they bought shares of Tk 26.52 billion and sold of Tk 7.09 billion.
The actual amount of foreign investment in the DSE in 2013 stands at Tk 19.44 billion, which was at Tk 7.93 billion in 2012.
“Foreign investors are attracted when share prices come down below the fundamentals. Foreign investors usually buy when the local ones are disappointed with the market. And they sell when the local investors’ interest (in the market) is back,” said Zaman, the managing director of IDLC.
According to Mirza Aziz, past incidents say that foreign investments in the markets increase when political instability looms over change of government.
He said that foreign investors take the opportunity of price slump during instability caused by local investors’ disappointment.
“They reap profit by selling it off later when the price rises,” he said.