Foreign investors shun multinational cos, as they exit market

Listed multinational companies' consistent business performance seems to have not been enough to keep foreign investors with them, let alone draw more foreign money. The reason is whimsical policies of the market regulator.
When it comes to investing in stocks in Bangladesh, foreigners are mostly interested in multinational companies, according to market experts. These companies are well governed and have successfully maintained a profit growth even in adverse business environment.
Still, data from the Dhaka Stock Exchange (DSE) shows that foreign investors have been shunning these companies in what market experts say is staying away from the market. And that has impacted the performance of the stocks.
"Multinational companies are the first choice of foreign investors. As the market was under floor [price] trap for more than 18 months, overseas investors felt discouraged to increase their exposure. Rather, they are selling off their holdings," said Mir Ariful Islam, managing director & CEO of Sandhani Asset Management.
Foreign shareholding in Grameenphone, the largest company in consideration of the market capitalisation, was 2.13 per cent in December 2022, which came down to 1.44 per cent in February this year.
BAT Bangladesh, the second largest stock, experienced a similar trend. Its foreign stake shrank from 6.39 per cent in December 2022 to 6.05 per cent in February this year.
Morgan Stanley Capital International (MSCI), a global investment research firm, last year decided to bring no change in measuring Bangladeshi stocks' performance in its frontier markets index due to "the deterioration of liquidity" in the equity market.
MSCI created a special circumstance as the price discovery was not happening correctly because of the imposition of floor price.
Several market insiders at the time said foreign investors would not be aware of any modification in the country's stock market if MSCI brought no changes in its index.
While the floor price made overseas investors jittery, the depreciation of the local currency against the dollar added to their concerns.
The Bangladesh Securities and Exchange Commission (BSEC) lifted the restriction from BAT Bangladesh on March 4 more than 18 months after it was imposed.
Subsequently, the stock saw massive selloffs as investors wanted to get rid of their holdings.
BAT stock saw the highest correction among the listed multinational stocks of 20 per cent to Tk 413 per share since the floor price removal to Wednesday. The tobacco product manufacturer reported a year-on-year profit growth for 2023.
BAT declared a 100 per cent cash dividend for 2023, the lowest in more than a decade, which represents only 30 per cent of the total profit gained in 2023.
Similarly, GP stock plunged 16 per cent to Tk 240.7 per share on the DSE since the withdrawal of floor price on March 3. The leading telecom operator declared a 125 per cent cash dividend for 2023, the lowest since its listing in the stock market.
The company reported a higher profit for 2023, compared to the year before.
The dollar crisis might be a reason behind the low cash dividends. Moreover, companies are striving to retain profits due to the increase in business costs brought on by high inflation.
Many multinational companies are facing problems repatriating dividends due to the shortage of the greenback, said Mr Islam.
Amid lower participation of foreign investors, overall foreign transactions slumped 48 per cent year-on-year to Tk 21.67 billion in 2023.
That happened though the Bangladesh Securities and Exchange Commission (BSEC) held a number of roadshows in recent years to attract foreign investors to the stock market.
The 30 per cent drop in the exchange rate between the taka and the US dollar in the past 18 months has dealt a heavy blow to foreign investors.
"The value of their assets has fallen even if the share prices have remained unchanged," said a leading broker who deals with foreign investors, requesting not to be named.
"Once the foreign exchange market stabilizes, global investors will return to Bangladesh's stock market," said Mr Islam, of Sandhani Asset Management.
Meanwhile, the regulator has failed to regulate the market properly. As a result, manipulation is widespread, leading to unusual rallies of low-performing stocks.
Eight, out of 13 multinational companies listed on the DSE, disclosed their annual financial results for 2023. Of them, seven posted a profit growth, riding on a higher revenue year-on-year.
But their stocks fell 4 per cent to 20 per cent in the month to Wednesday.

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