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Capital market growth fails to catch up with overall dev

  • Published at 11:27 am December 8th, 2019
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Mehedi Hasan/Dhaka Tribune

Bangladesh's market cap to GDP ratio lowest among Asia-Pacific countries

The growth of the country’s capital market is falling behind the overall economic development as the market cap to GDP ratio of Dhaka Stock Exchange (DSE) has been declining for the last eight years. 

In 2014, the market capitalisation to GDP ratio stood at 24%, which has come down to 11.86% as of September, 2019. The size is the lowest among the emerging bourses in the Asia-Pacific countries.

The ratio was at its peak at 50.67% in 2010, and it slumped to 33.23% within a year after the biggest market crash in the country’s history in 2010-11. 

According to the monthly review of Dhaka bourse, the market capitalisation to gross domestic product (GDP) ratio on the DSE fell to 11.86% as of September which was 15.06% in January this year.

Analysts and market insiders points out lack of good companies in the market as the primary reason behind the falling market cap to GDP ratio. Another major reason cited by them is investors' confidence crisis. 

To attract good companies, experts suggest simplification of the process of listing and bringing government companies to the market to become examples for others.

Market cap to GDP ratio in Asia-Pacific countries

In September 2019, stock market capitalisation to GDP ratio was 102.71% at Bursa Malaysia, followed by 68.81% at BSE India, 45.37% at Indonesia Stock Exchange, 17.89% at Colombo Stock Exchange and 15.02% at Pakistan Stock Exchange.

In the same time, the marker capitalisation to GDP ratio at Singapore Exchange was 176.25%, followed by 173.66% Taiwan Stock Exchange, 112.71% at Japan Exchange Group, 108.21% at Stock Exchange of Thailand, 75.93% at Philippine Stock Exchange, 32.28% at Shanghai Stock Exchange and 21.26% at Shenzhen Stock Exchange.

Where primer bourse of Bangladesh stands 

The market cap to GDP ratio of country’s primer bourse Dhaka Stock Exchange is the lowest among the emerging Asian-Pacific countries, with 11.86% in September, 2019. 

The ratio was at its highest at 50.67% in 2010, which came down to 33.23% within a year after the biggest market crash in the country’s history in 2010-11. The ratio was 17% in 2018, 21% in 2017, 20% in 2016 and 21% in 2015.

Why this bleak picture at DSE

The market capitalization at Dhaka Stock Exchange (DSE) has dropped in the last nine months of this year.

The market cap in September was USD 37.32bn, which was USD 43.11bn in January this year.

Market operators observe that share price loss of large cap companies affected the overall market cap at DSE.

Three large cap companies — Grameenphone, British American Tobacco Bangladesh (BATBC) and Brac Bank — mostly led the fall in capitalization in the last couple of months, they say. 

Grameenphone led the fall of index as investors remained cautious about the ongoing dispute over audit claim between GP and the telecom regulator.

“The GP’s loss of market capitalization affected the overall market cap at DSE as the mobile operator was the highest market-capitalized company at the stock exchange,” stock market analyst and honorary professor at Dhaka University’s economics department Abu Ahmed told Dhaka Tribune.

Market capitalization, or market cap, is calculated by multiplying the total number of a company's outstanding shares with the current market price of shares.

How to boost stock market

Experts and stakeholders suggest that stock market regulator Bangladesh Securities and Exchange Commission (BSEC) should put emphasis on quality IPO to recoup investors’ dented confidence.

Former adviser to a caretaker government AB Mirza Azizul Islam told Dhaka Tribune: “The stock market is a great source of funds, but its true potential is still untapped”.

“To attract entrepreneurs, the government has to set an example by offloading shares of state-owned companies [to the stock market],” he said.

He, also a former BSEC chairman, added that the stock market regulator, stock exchanges, and issue managers also had a key role to play in attracting companies to get listed on the bourses. 

Talking to Dhaka Tribune, former managing director of Chittagong Stock Exchange (CSE) M Shaifur Rahman Mazumdar suggested formulating policies to ensure listing of high-quality companies which were, at present, beyond the purview of the capital market or just unwilling to be listed. 

“Formulating policies for listing of state-owned and foreign companies and establishing a corporate bond market through regulatory co-ordination and reformation are also essential to come out of the existing situation,” he added.

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