The deepening political crisis and fierce clashes centering the students' non-cooperation movement severely affected the foreign investors' sentiment, which market experts fear will intensify their sell-offs.
Tension heightened among overseas investors, as much as local investors, amid a new wave of violence followed by curfew from 6:00pm on Sunday.
The students' movement that began weeks ago seeking reforms to the quota system in government jobs turned into a mass movement demanding the resignation of Prime Minister Sheikh Hasina and her cabinet members.
The faith of foreign investors' in the capital market had already eroded due to the negative economic outlook and repeated devaluation of the local currency, while the latest violence and Internet blackout added to the problem, market experts say.
"Foreign investors are closely observing the situation. They are asking us when the situation will improve," said Mohammed Rahmat Pasha, managing director of UCB Stock Brokerage, one of the top brokerage firms that deal with foreign portfolios.
Mr Pasha, however, said overseas investors were not taking any buy or sell decisions right away.
Global investors have been shunning the Bangladesh market since 2020 due to the sharp devaluation of the local currency against the dollar on the back of the pandemic and then the Russia-Ukraine war. The latest spell of violence deepened the crisis.
The country's net foreign portfolio investment stood at $89 million in the negative for the nine months through March this year, compared to $45 million in the negative for the same period a year ago, according to the Bangladesh Bank. The negative investment means more money flew out than what came in for investments in listed securities.
The taka has lost its value by more than 36 per cent against the dollar since the start of the Russia-Ukraine war in February 2022. Forex reserves almost halved during the time.
Overseas investors witnessed a decline in value of their assets when the taka became cheaper. The forecast that the local currency would lose its value further prompted them to exit the market in their hordes.
"The biggest loss is the damage to the image of Bangladesh," said Mohammed Mohiuddin, chairman of Island Securities.
The Internet shutdown was the biggest blow in recent times, considering the economic loss of the country. "You can't shut down the Internet suddenly, denting the confidence of overseas investors."
The public holidays from July 21 to July 24 meant to quell protests coupled with Internet blackout already severely affected businesses and that is feared to impact companies' profits and dividend payouts in the upcoming year.
Meanwhile, the government has announced a three-day general holiday from today (Monday) for public safety as protests raged on and spread across the country. Clashes between police and protesters have already led to more than 200 deaths, including children.
"Foreign investors will treat Bangladesh as unsustainable, which will negatively impact the stock market," added Mr Mohiuddin.
Foreign investment in stocks has been on the decline since the pandemic hit the world. Then the economic setbacks stemming from the Russia-Ukraine war and the imposition of floor prices by the stock market regulator twice to stop free-fall of stocks hurt their sentiment further.
The Bangladesh Securities and Exchange Commission (BSEC) finally lifted the floor price after 18 months in January this year. After the removal of the price restriction, foreign investors rushed to sell-off their holdings.
The absence of price discovery of a large number of stocks for so long acted as a catalyst for the quick outflow of overseas funds.
Subsequently, foreign stakes in major companies fell sharply.
Against the backdrop of the student protests, S&P Global downgraded Bangladesh's rating owing to the persistent pressure on the external accounts.
"The prevailing uncertainties surrounding the quota reform movement are worrisome for foreign investors," said Md Shakil Rizvi, managing director of Shakil Rizvi Stock Ltd
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