Foreign stock buy-sell up 25% amid sustained capital outflow

At the end of the 2025-26 fiscal year, Bangladesh's capital market saw a 25% rise in foreign portfolio investors' stock trading activity, both buying and selling, driving total foreign stock turnover to a four-year high.

Yet the market continued to suffer a net capital outflow as foreign investors ultimately pulled more money out of equities than they put in, according to market data and officials.

Although the overall market turnover rose by nearly Tk1,000 crore year-on-year to Tk4,943.09 crore in FY26 from Tk3,943 crore in the previous fiscal year, foreign investors remained net sellers for most of the year.

The Dhaka Stock Exchange (DSE) data showed that foreign stock turnover in last fiscal year hit a four-year high, matching levels not seen since FY22.

Heavy foreign selling ahead of the February national election, driven by political uncertainty and macroeconomic concerns, was followed by a brief rebound in inflows after the BNP-led government took office. 

However, the momentum faded with the outbreak of the Iran-US conflict, which triggered another wave of foreign selling.

Market insiders attribute this shift to foreign portfolio investors pulling funds from Asian markets to concentrate on highly regulated capital markets, leading them to retreat from Bangladesh. 

"Despite increased trading activity, foreign investors remained net sellers for most of the fiscal year, with particularly heavy selling pressure in June," a DSE official said on condition of anonymity.

"Following the assumption of office by the new BNP-led government, foreign portfolio investment in stocks surged as overseas investors poured funds into the market.

However, expectations of sustained foreign inflows faded after the beginning of the US-Iran war, the official added.

"Foreign investors' trading activity has picked up, but their selling volumes still exceed purchases, although the selling pressure has eased somewhat in recent months," said Saiful Islam, president of the DSE Brokers Association (DBA).

He said concerns over Bangladesh's vulnerability to energy price shocks during the Iran-US conflict prompted foreign investors to cut their exposure, adding that participation could recover once geopolitical tensions ease.

Saiful Islam also identified the capital gains tax regime and its calculation method as major impediments to attracting foreign investment, saying the DBA has repeatedly raised the issue with regulators.

"A new commission, comprising a chairman and three commissioners, has taken charge, and we hope that if it introduces initiatives to attract foreign investment, overseas investors will return to the market," he added. 

A senior brokerage official said foreign investors have been pulling money from several Asian markets, including Bangladesh and India, to increase investments in developed markets.

"They are moving away from riskier markets and shifting to highly regulated ones. In 2025, foreign investors also withdrew a record amount of capital from the Indian stock market," the official added.

According to a Reuters report, foreign portfolio investors withdrew a record 1.6 trillion rupees ($18 billion) from Indian equities in 2025 amid valuation concerns, weak earnings, geopolitical risks and worries over steep US tariffs on Indian exports.

A previous TBS report showed that foreign capital outflows from Bangladesh's stock market hit a new high in May as overseas investors aggressively cut holdings in blue-chip and fundamentally strong stocks.

Amid escalating geopolitical tensions in the Middle East and persistent domestic economic challenges, foreign investors sold shares worth Tk161 crore during the month, while fresh purchases fell to just Tk6 crore.

The sharp imbalance underscores growing risk aversion among global fund managers, who are increasingly favouring liquidity and safe-haven assets over exposure to frontier markets.

The selling was concentrated in blue-chip and fundamentally strong stocks, according to DSE data.