The equity market has been showing signs of a return of foreign investors since the August political changeover.
Stocks known as lucrative to overseas investors saw their stakes increase by October, compared to the holdings four months back.
According to market analysts, the renewed interest in the stocks is largely driven by reform measures taken by the interim government across the economy.
The newly-formed Bangladesh Securities and Exchange Commission (BSEC) led by Chairman Khondoker Rashed Maqsood has been working to improve the market monitoring mechanism and to bring market manipulators to justice. That may have boosted investor confidence, say market experts.
Foreign fund managers forecast that the market will reap benefits from a decline in global interest rates if the regulatory body refrains from intervening in the market with tools such as floor price.
According to the Dhaka Stock Exchange, transactions in foreign portfolios more than doubled to Tk 13.91 billion in July-September this year, compared to the corresponding period last year.
The Bangladesh Bank data shows that net portfolio investment by foreign investors soared to $49 million in July-August of FY25 while it was a mere $3 million in the same period of the previous year.
Several key factors, including interest rate cuts by the US Federal Reserve, stable exchange rate and favorable stock prices, encouraged overseas investors to pour fresh funds in good stocks, said Akramul Alam, head of research at Royal Capital.
The rising corporate profitability of well-performing companies even in an adverse business climate also made foreign fund managers optimistic, he added.
The US Federal Reserve reduced its key interest rates in September this year by 50 basis points for the first time in more than four years, reported BBC.
In less than two months, the Fed further cut interest rates by 0.25 basis points to the range of 4.50 per cent to 4.75 per cent on November 7 to ease borrowing costs on the back of inflation cooling down.
"The bank interest rates in the US are falling, so funds are moving out of the country to emerging and frontier markets."
Subsequently, frontier and emerging equity markets are expected to see a surge in foreign investments, said Mr Alam.
For example, foreign investors injected an impressive 573.59 billion rupee in Indian equity markets in September alone. India's robust economic fundamentals have acted as catalysts too.
In Bangladesh, the foreign exchange market has been gaining strength, with a rise in inbound remittance and key policy interventions by the central bank.
Higher remittance inflow over the last few months provided a breather for the country, as it helped ease external payment pressure amid dwindling foreign exchange reserves.
Remittance inflow amounted to $8.93 billion in July-October this year, up 30 per cent from the same period last year, shows the data of the central bank.
"The interbank forex market is moving towards a stable phase, riding on the strong rebound in remittance inflows. That in turn prevented a steep devaluation of the taka and narrowed the gap between the formal and kerb markets," said Mr Alam.
Requesting anonymity, a local stockbroker, who deals with foreign investors, said foreign fund managers had been injecting funds in well-performing stocks at lucrative prices since July this year.
After the removal of floor prices in January this year, most of the leading companies have experienced significant price erosion and become cheap.
Meanwhile, foreign investors gained confidence that the detrimental policies will not be taken in the future. Instead, reforms will be implemented to ensure good governance in the stock market.
That resulted in positive outcomes.
Foreign shareholdings in Islami Bank rose to 17.89 per cent in October from 13.16 per cent in June this year.
The stock jumped to Tk 70.4 per share on the prime bourse on September 25 from the floor price of Tk 32.6 per share on August 6, following a hype surrounding the bank. As the bank's board has been restructured, removing representatives of S Alam Group, investors believe the lender's financial situation will improve.
Islami Bank closed at Tk 55.1 per share on Monday as the most-valued bank stock on the Dhaka bourse.
Olympic Industries experienced a similar trend. Its foreign stake moved up to 34.20 per cent in August from 23.97 per cent in June this year.
BRAC Bank, the largest private commercial bank in terms of profitability, witnessed its foreign stake go up from 30.25 per cent in June to 31.92 per cent in October.
Good governance and listing of reputable companies are must to attract more foreign funds to the equity market. Moreover, policies should be made market friendly and should not be changed frequently.
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