January foreign equity flows unusually high

Net foreign equity flows to and from Bangladesh's capital market this past January were "abnormally high" at over US$ 61 million compared to corresponding 2017 period.

The foreign investments, especially in the last two weeks of January, totalled $37.33 million although the first week of the month began with a modest investment of $3.3 million.

These data were prepared exclusively for the Financial Express (FE) by Massachusetts-based EPFR Global that tracks fund movement across the world.

The data also show that the January 2018 investment by foreigners high in at least 13 months beginning from December 2016.

This is also much high when compared with previous month of December at a time when there was "possibly" profit taking by them or fund withdrawal as the net fund flow in December last demonstrated a minus figure amounting to nearly $1.0 million.

Security analysts, especially fund managers who deal with such foreign portfolios, told the FE that the foreign investors usually buy while the market stays downward in terms of stock prices.

They mostly bought scrip on the back of country's economic prospects and comparatively cheap scrip with strong fundamentals.

However, the country's equity market witnessed sharp downturns in terms of points in the first week of this month (February).

But the data relating to net fund flows on this particular week were not available at the time of the filing of this report on Wednesday afternoon.

The security analysts told the FE that foreign investment in the capital market depends on many indicators-- global economic growth prospects, political stability, international commodity market, Fed interest rate, bullion market, trends in emerging markets and so on.

They also view that in many instances the foreign investors also become panicked and feel fear at a time when the market goes on a freefall.

Mostaque Ahmed Sadeque, president of the Brokers' Association of Bangladesh (DBA), told the FE that the foreigners also go by rumours.

"But this time, so far, I contacted many fund managers and they informed me that foreigners were on a buy-spree on the back of cheap scrip and country's economic growth prospects."

Economic growth matters to the investors as a faster or slower trend in growth directly influences profits and, therefore, long-term stock-market returns.

Mr Sadeque is also of the view that the foreign investment in the country's capital market cannot dictate the market as their shares are very low--less than 2.0 per cent in the country's prime bourse, Dhaka Stock Exchange (DSE).

The DSE market capitalisation as of Wednesday is more than $50 billion or around 21 per cent of country's nominal GDP.

"We've so far favourable political situation," Mr Sadeq, managing director at Investment Promotion Services, went on.

Khairul Bashar Abu Taher Mohammed, secretary-general of Bangladesh Merchant Bankers Association (BMBA), however, noted that foreign investors are usually long-term investors and they do not bother about rumours.

"The foreign investors usually have less fear, panic and emotions," said Mr Mohammed, also chief executive officer of MTB Capital Limited.

"Actually our market is retail-based and around 80 per cent shareholders are retailers, and if they get panicked, the market suffers in terms of prices and average turnovers."

Daily turnover, an important gauge of the capital market, stood at Tk 4.38 billion on average in five weeks of trading in January 2018, down by 70 per cent against the same period in 2017.

During the year 2017, DSEX, the prime index of the DSE, registered a cumulative gain of 1,208 points or 24 per cent.

But this January DSE key index shed 223 points or 3.57 per cent.

A fund manager who is familiar with the foreign portfolios told the FE that the overseas investors invested much in January mainly due to the growth prospects of the economy.

He said they take position on such freefall market.

"They are actually much smart investors and they even take new positions," he said, wishing anonymity, to explain the latest tumble of the stock-market.

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