Foreign Investors Keep Fleeing Dhaka's Stock Market Even as Regulators Sweeten the Deal

The Incentives Keep Coming, But So Do the Outflows

Bangladesh's securities regulators spent much of the summer trying to make the Dhaka Stock Exchange more attractive to foreign money. Bangladesh Bank scrapped the requirement for an auditor's certificate on non resident trades. The Bangladesh Securities and Exchange Commission relaxed dividend remittance deadlines and tied compliance to Double Taxation Avoidance certificates instead. MSCI even announced it would resume regular index reviews for Bangladesh starting in November. None of it was enough to stop foreign investors from selling in August, and the scale of the exit is now showing up stock by stock in the DSE's own ownership data.

City Bank saw foreign ownership fall by 1.72 percentage points during the month as overseas holders pulled roughly Tk90 crore out of the stock. BRAC Bank lost 0.57 percentage points of foreign ownership on an exit of about Tk80 crore. Prime Bank's foreign stake slipped 0.35 points on a Tk12.30 crore withdrawal, and even a blue chip name like Square Pharmaceuticals saw foreign holders trim their position by Tk7.5 crore, a 0.04 point decline. Beyond these four, sell offs spread across pharmaceutical, textile and industrial names, with analysts noting there was barely any offsetting foreign buying activity to speak of.

Stock	Foreign Ownership Change (August)	Approx. Value Sold
City Bank	-1.72 percentage points	Tk90 crore
BRAC Bank	-0.57 percentage points	Tk80 crore
Prime Bank	-0.35 percentage points	Tk12.30 crore
Square Pharmaceuticals	-0.04 percentage points	Tk7.5 crore

A Pattern That Predates August

What makes August's numbers worth taking seriously is that they extend a trend rather than mark a sudden break. BD Financial Review's own coverage has tracked a market that closed the fiscal year already under pressure, with the DSEX sliding to a two month low after 13 straight losing sessions on September 1, and energy driven jitters sending the index to a two and a half month low just over a week later. Foreign investors were active participants in both episodes rather than bystanders.

Trade data from earlier in the year tells a similar story with a twist. Foreign portfolio trading activity actually rose 25 percent in fiscal year 2025-26, hitting a four year high and pushing average weekly turnover on foreign accounts up from roughly Tk3,943 crore to Tk4,943 crore. But higher trading volume did not mean foreign investors were buying more than they were selling. DSE officials describe them as net sellers for most of the fiscal year, with heavy selling ahead of February's national election, a brief recovery once the new government took office, and then renewed selling pressure after the Iran-US conflict flared up, intensifying further in June. In other words, foreign investors have been trading Bangladesh shares more actively even while steadily reducing how much of the market they actually own, a pattern that looks less like panic and more like a slow, deliberate reallocation away from the country.

A specific episode in late July illustrates how sensitive that positioning has become to local regulatory signals. On July 25, the DSEX fell 96 points, or 1.63 percent, to 5,804.30, snapping a three week winning streak, after the securities commission proposed new margin lending restrictions that would exclude certain insurance stocks from eligibility. Average daily turnover dropped 28 percent that week. On July 21 alone, foreign investors accounted for 3.31 percent of sell side volume against just 0.23 percent on the buy side, and by the week's final session foreign buying had fallen to zero while selling reached 2.45 percent. Institutional investors piled on too, selling more than they bought in three of five sessions and hitting 10.18 percent of daily turnover on the sell side at the peak. The episode shows how a single proposed rule change, well short of anything drastic, was enough to tip an already cautious foreign investor base further toward the exits.

Why the Sweeteners Are Not Landing

Market analysts point to reasons that go beyond any single rule or announcement. Global funds have been rotating toward developed markets and away from riskier frontier and emerging markets generally, a pattern that has also hit Indian equities over the past year. Bangladesh's capital gains tax regime is frequently cited as a specific deterrent for institutional money that has cheaper, more liquid alternatives elsewhere. Layered on top of that are concerns closer to home, including leadership changes at the central bank, a regulatory cap on interest rate spreads, and a broader worry, voiced by several analysts, that administrative interventions risk pushing the financial system toward a command style economy that weakens market based decision making. One analyst put it bluntly, warning that this kind of intervention encourages global investors to shift funds elsewhere rather than commit for the long run.

That combination helps explain why relatively investor friendly moves, such as easing the paperwork burden on non resident trades or aligning dividend remittance with tax certificates, have not been enough on their own to reverse the flow. Removing a bureaucratic obstacle addresses friction at the margin, but it does not resolve concerns about tax treatment, policy consistency, or the direction of financial sector oversight, which are the issues investors say weigh most heavily on their decisions.

Why Bank Stocks Are Bearing the Brunt

It is not a coincidence that three of the four stocks with the sharpest foreign selling in August, City Bank, BRAC Bank and Prime Bank, are commercial banks. Foreign portfolio managers have historically used Bangladesh's listed banks as their primary proxy for the health of the broader financial system, since banks are among the most liquid, most heavily disclosed names on the exchange. That makes them the first stocks sold when sentiment on the sector turns, and sentiment on Bangladeshi banking has had plenty working against it this year: a non performing loan ratio that climbed to 32.78 percent of all outstanding credit in June, a bribery scandal at Bangladesh Commerce Bank that forced disciplinary action against 13 officials, and private sector credit growth that slowed to a 33 year low even after Bangladesh Bank cut its policy rate for the first time in six years. A foreign fund manager weighing whether to hold a Bangladeshi bank stock is, in effect, also weighing all of that at once, which helps explain why banks have absorbed a disproportionate share of the outflow even though the underlying sell orders themselves were relatively modest in absolute taka terms.

What to Watch Next

The one bright spot on the horizon is MSCI's decision to resume regular index reviews for Bangladesh starting in November, a move that could eventually restore some passive foreign inflows if the country's weighting in relevant indices improves. Regulators are also pairing the direct listing revival announced in September with promises of tighter, technology driven market surveillance, in part to reassure investors that the market's basic integrity is improving even as individual policy details remain unsettled. Whether either move meaningfully changes the calculus for foreign portfolio managers will likely become clearer only over the next full quarter of ownership data, once the initial reaction to September's newer reforms works its way through DSE's monthly disclosures.