Signs of capital flight from DSE mark 2008

Sell-offs by foreign fund managers outpaced the buying pressure on the country's prime bourse in growing signs of capital flight from the stock market in 2008 in the wake of the global financial crisis.

The foreign investors sold shares worth Tk 814.96 crore, while they bought shares worth Tk 550.54 crore last year, according to Dhaka Stock Exchange (DSE) statistics.

However the DSE in 2007 had received Tk 889.06 crore in net foreign investment, which was a jump of around 830 percent compared to the previous year. Throughout that year, the foreign investors bought shares worth Tk 1439.76 crore, while the selling amount was Tk 550.7 crore.

Many a fund manager had become bankrupt because of the global financial meltdown and withdrew their investments from the stock markets in different countries to meet liquidity crisis, according to market analysts.

They said Bangladesh capital market was also on the money withdrawal list, despite the market was not so big as India, China and Japan.

On the onset of global financial crisis, the foreign or portfolio investment accounted for less than three percent of the total market capitalisation, or around US$ 60 crore.

By the end of 2008, such investment came down around $40 crore.

“There was a selling pressure instead of injecting fresh fund last year because of the profit-taking move by the global fund managers to meet their liquidity crisis, stemmed from the financial meltdown,” said Salahuddin Ahmed Khan, professor of Finance at Dhaka University.

However, the foreign investors had started injecting fresh fund in the later part of the year, although the pace was very slow, said Khan, also the immediate past chief executive officer of DSE.

“As our market has been maintaining a steady growth and the global credit crunch could not put any impact on our market, foreign investment will go up in near future,” he hoped.

Since the onset of the crisis, economists, experts and stakeholders of the capital market repeatedly said Bangladesh market is less allied with the global stock markets and there will be no fallout from the financial crisis.

Some analysts also see the Dhaka market as an emerging market because the diversion of global fund managers is likely due to the fact that returns from investment are ensured here.

They said inclusion of Bangladesh in the Goldman Sachs' 'Next 11' countries is another evidence that international investors now take interest in the country's stock market.

Banking sector shares followed by fuel and power, pharmaceuticals and cement sectors are on the choice list of foreign investors, mainly from the US and Europe.