Foreigners offload Tk161cr in May as sell-off in Square Pharma, BRAC Bank intensifies

The exodus of foreign capital from the country's stock market reached a new peak in May as international investors aggressively trimmed their positions in blue-chip and fundamentally strong companies. 

Infograph: TBS

Amid escalating geopolitical tensions in the Middle East and persistent domestic economic headwinds, foreign sales surged to Tk161 crore during the month, while fresh purchases dwindled to a negligible Tk6 crore.

This staggering imbalance highlights a deepening risk aversion among global fund managers, who appear to be prioritising liquidity and safe-haven assets over frontier-market exposure.

Data from the Dhaka Stock Exchange shows that the selling pressure was heavily concentrated in the market's most liquid and prestigious scrips. 

Square Pharmaceuticals, long a staple of foreign portfolios, witnessed the highest sell-off, with overseas investors offloading shares worth Tk56 crore. This reduced their stake in the pharmaceutical giant from 15.11% in April to 14.81% by the end of May.

BRAC Bank followed closely, experiencing a Tk50 crore pull-out that saw foreign shareholding slide to 35.89% from 36.22%. 

Other major financial and consumer staples were not spared either; Prime Bank saw Tk18 crore in foreign sales, while telecommunications leader Grameenphone and healthcare heavyweight Renata recorded outflows of Tk16 crore and Tk9.7 crore, respectively.

The sell-off was widespread, with foreign investors reducing their stakes in 25 different companies. Notable exits were also seen in Marico Bangladesh and City Bank, where investors withdrew Tk4.3 crore and Tk1.5 crore, respectively.

In a complete withdrawal, foreign investors liquidated their entire remaining position in Bangladesh National Insurance. 

Overall, foreign turnover for the month stood at Tk167 crore, slightly higher than the previous month, but the composition of that turnover was almost entirely dominated by sales, leaving the net investment position deeply in the negative.

In contrast to the heavy selling, the appetite for fresh investment remained remarkably thin. 

Foreign buyers increased their holdings in only 15 firms, with total purchase value amounting to just Tk6 crore – a sharp decline from the Tk12.06 crore invested in April and the Tk50 crore seen in March.

Beximco Pharmaceuticals emerged as the primary beneficiary of what little interest remained, attracting Tk4.40 crore in new foreign capital. Minor increases were also noted in Bangladesh Submarine Cable, Dutch-Bangla Bank, and Meghna Petroleum, though these inflows were far too small to offset the wider sell-off.

Market experts and researchers attribute this persistent retreat to a "perfect storm" of global and domestic factors. 

A senior researcher at a leading brokerage firm said the optimism that emerged after the national election had largely dissipated amid escalating tensions in the Middle East involving the United States, Israel and Iran.

This geopolitical volatility has sent shockwaves through global energy markets, creating a climate of economic uncertainty that is particularly punishing for energy-import-dependent nations like Bangladesh. 

For global investors, the looming threats of heightened inflation and energy insecurity have made the domestic equity market appear increasingly high-risk.

These external pressures have compounded long-standing domestic structural issues, including currency depreciation and difficulties in fund repatriation, which continue to weigh on the market's attractiveness. 

However, in a bid to stem the tide and woo back international capital, the Bangladesh Bank recently introduced a landmark policy shift. 

On 20 May, the central bank issued a circular eliminating the long-standing requirement for an auditor's certificate for every single transaction made by non-resident investors.

Previously, foreign investors were forced to obtain a certificate from a chartered accountant for every trade to determine capital gains tax before funds could be reinvested or moved abroad – a process that caused significant delays and increased compliance costs. 

Under the new directive, authorised dealer banks will now handle the tax withholding directly from the sale proceeds, ensuring immediate credit to Non-Resident Investor Taka Accounts (NITA).

Analysts have hailed this as a fundamental change that removes a major administrative hurdle. While the May data reflect the panic that preceded this reform, market participants expect the streamlined process to stabilise foreign participation in the coming months as the operational ease of trading in Bangladesh improves.