Only 17 companies and mutual funds out of 350 listed on the Dhaka Stock Exchange (DSE) have been able to attract a sizeable amount of foreign investment.
Another 122 companies received foreign fund at a very minimum level, while 198 or 56.57 percent of the total have failed to get any. Experts blame the thin flow of foreign funds on poor corporate governance in listed companies.
“Foreign investors look for companies that performed well, maintain good governance and have growth potential. But we were unable to provide them with a long list of such companies,” said Mohammed Rahmat Pasha, managing director of UCB Capital Management.
“So, their investment was concentrated on a few companies.”
Mizanur Rahman, a professor at the Department of Accounting and Information Systems at the University of Dhaka, echoed the views of Pasha.
Rahman said most of the listed companies do not follow good governance practices and some companies' financial statements do not describe their true picture.
“So, foreign investors cannot trust these companies to go for investment,” he said.
Another top stock broker, preferring anonymity, said foreign investors look at the skills of the management, board members, political scenario, and resilience of a company in the event of a shock as well as the growth potential of the related sector.
According to the DSE data, net foreign portfolio investment totalled Tk 8,002 crore as on January 31, which is only 1.92 percent of the total market capitalisation of the DSE.
Brokers, who deal with foreign investors, say when they ask foreigners to invest more on the DSE, they always receive a common reply from investors: there is a scarcity of good stocks.
“Researchers can recommend names of only 30 to 35 companies to meet foreigners' criteria. So, how can they invest more even if they want? Initiatives are needed to enlarge the list of good companies,” Pasha said.
Investors' scope to invest in good companies is also limited, as they cannot buy more than 5 percent of shares of a company, he said.
Rahman recommends that the regulators and merchant bankers work together to bring more stocks that performed well to the market to attract more foreign investment.
Foreign investors hold over 10 percent of stakes in 17 companies while their participation is insignificant in multinational companies, the DSE data showed.
As most of the multinational companies are not going for expansion, their growth potential is not very high though their dividend history is good, Pasha said. “But, foreign investors do not look at the history only; they put more emphasis on potential.”
Foreigners own nearly 40 percent of stakes in three of the companies -- Delta Brac Housing Finance, Brac Bank and Olympic Industries.
Rahman said some well-performing companies were listed on the stock exchanges but their price was not lucrative compared to their potential. “Foreign investors don't buy overvalued shares.”
Saifur Rahman, spokesperson of the Bangladesh Securities and Exchange Commission, said the commission has already issued a corporate governance code to compel all of the listed companies to follow rules.
“We have already fined some companies for breaching the code,” he said, adding that he was hoping for the corporate governance situation to improve.
Mohammad Mohiuddin Ahmed, executive director of Financial Reports Monitoring Division at Financial Reporting Council, agreed that there were some problems in the financial statements of some companies.
“We have already started working to bring truthfulness in financial reporting,” he said.