Bangladesh's capital market is ready to drive the future economy
This is the first of a two-part series that discusses about how the capital market, despite recent setbacks, will take Bangladesh's economy forward
Mahmud Hossain Opu/Dhaka Tribune
Md Sayadur Rahman
Publish : 01 Jan 2022, 09:51 PMUpdate : 14 Feb 2022, 04:13 PM
Bangladesh has experienced remarkable economic growth in the last decade with an average GDP growth rate of more than 6%.
It is now the 37th largest economy in the world with a GDP of $409 billion and per capita income of $2554.
With an 8% yearly growth forecast, the per capita GDP of the country may reach $12,000 by 2041.
The country aims to attain the status of developed country within 2041 by leveraging its demographic dividends and its capital market is ready to fuel the unprecedented economic growth.
Bangladesh has shown respectable performance on the economic front in the last couple of years despite slowing growth as a result of coronavirus.
In spite of more than six decades of lifetime, the local capital market is yet to reach its desired level.
Although capital market operation in Bangladesh has progressed well over the years, still there is a huge scope for it to grow as only around 2% of total population have access to capital market compared to 55% access rate in USA.
Furthermore, the market cap to GDP ratio in Bangladesh is still around 15.5%(one of the lowest in the world) compared to that of Pakistan (31%), Vietnam (45%), India (93%) and Thailand (126%).
Recent capital market performance in a nutshell
The capital market in Bangladesh has witnessed robust performance since June 2020.
The prime index (DSEX) sustained at around 7000 psychological threshold during September- December 2021 from a meager 3,600 level in March 2020. DSEX, the core index of the DSE, reached 7,368 points in October 2021, the highest since its inception in 2013.
The index increased by almost 95% from the lowest level in 2020.
Tk2,954 crore turnover on 16 August 21 was the highest during the decade and market capitalization too reached its historical peak point (Tk586,320 crore on 9 September 2021) as well.
A number of factors contributed to the shining performance of the capital market.
Pro-active regulatory regime under the new BSEC, with a number of timely initiatives and reforms, has created vibrancy in the capital market.
The newly formed BSEC has also managed to instill confidence among investors by ensuring enforcement of all necessary securities related rules and regulations.
Meanwhile, the economy also flourished with huge liquidity due to expansionary monetary policy, reduction in policy rates, low private credit growth and higher deposit growth.
Such high liquidity and low interest rate regime helped in fund flow from money market to the capital market to a great extent and boosted the turnover in the market.
Naturally money flows where money grows, so, low bank interest rate and slowdown in economy and other businesses due to lock-down unpredictability has lured more new investors to participate in the market.
Due to continued restrictions and lock-down, small and medium business groups (retail and SMEs) remained inactive and used their idle funds in the capital market as a means of short term income generation in line with the up-market.
The market was also underperforming over a decade, so the combined effect of all positive events helped in the revival of market since the reopening of market after pandemic led shut down in early 2020.
Recent slowdown in the market
The capital market in Bangladesh has been witnessing some sort of volatility and price correction over the past few months for a number of reasons.
As the economy has reopened to almost full scale, it is natural to diversify some funds from the capital market to other productive sectors.
As private credit is rising with stability in the economic front, it will also put some pressure on liquidity.
Besides, as the market has seen huge gains over the last one and a half years, some fund withdrawal and profit booking tendency is happening while some investors remain inactive to understand the market.
So, with low trade velocity and profit taking sell pressure, decline in market turnover in the short term is natural.
Meanwhile, the liquidity scenario in the banking sector has also changed.
Any change in the money market scenario will definitely affect the capital market performance as well.
However, any short term volatility in the market caused by any predictable and unpredictable macro-economic force is natural globally and the need for prudent fund managers arises in such scenarios to outperform the market.
A rational investor should look for risk adjusted moderate return, higher than bank deposit rate.
No market can sustain a bullish trend for an indefinite time period.
However, the capital market performance is expected to remain stable with several initiatives taken by the regular and stability in the macro-economic scenario.
The author is president of the Bangladesh Merchant Bankers Association (BMBA) and managing director of EBL Securities Ltd
ANALYSISPowered by Froala Editor
Bangladesh's capital market is ready to drive the future economy
This is the first of a two-part series that discusses about how the capital market, despite recent setbacks, will take Bangladesh's economy forward
Bangladesh has experienced remarkable economic growth in the last decade with an average GDP growth rate of more than 6%.
It is now the 37th largest economy in the world with a GDP of $409 billion and per capita income of $2554.
With an 8% yearly growth forecast, the per capita GDP of the country may reach $12,000 by 2041.
The country aims to attain the status of developed country within 2041 by leveraging its demographic dividends and its capital market is ready to fuel the unprecedented economic growth.
Bangladesh has shown respectable performance on the economic front in the last couple of years despite slowing growth as a result of coronavirus.
In spite of more than six decades of lifetime, the local capital market is yet to reach its desired level.
Although capital market operation in Bangladesh has progressed well over the years, still there is a huge scope for it to grow as only around 2% of total population have access to capital market compared to 55% access rate in USA.
Furthermore, the market cap to GDP ratio in Bangladesh is still around 15.5%(one of the lowest in the world) compared to that of Pakistan (31%), Vietnam (45%), India (93%) and Thailand (126%).
Recent capital market performance in a nutshell
The capital market in Bangladesh has witnessed robust performance since June 2020.
The prime index (DSEX) sustained at around 7000 psychological threshold during September- December 2021 from a meager 3,600 level in March 2020. DSEX, the core index of the DSE, reached 7,368 points in October 2021, the highest since its inception in 2013.
The index increased by almost 95% from the lowest level in 2020.
Tk2,954 crore turnover on 16 August 21 was the highest during the decade and market capitalization too reached its historical peak point (Tk586,320 crore on 9 September 2021) as well.
A number of factors contributed to the shining performance of the capital market.
Pro-active regulatory regime under the new BSEC, with a number of timely initiatives and reforms, has created vibrancy in the capital market.
The newly formed BSEC has also managed to instill confidence among investors by ensuring enforcement of all necessary securities related rules and regulations.
Meanwhile, the economy also flourished with huge liquidity due to expansionary monetary policy, reduction in policy rates, low private credit growth and higher deposit growth.
Such high liquidity and low interest rate regime helped in fund flow from money market to the capital market to a great extent and boosted the turnover in the market.
Naturally money flows where money grows, so, low bank interest rate and slowdown in economy and other businesses due to lock-down unpredictability has lured more new investors to participate in the market.
Due to continued restrictions and lock-down, small and medium business groups (retail and SMEs) remained inactive and used their idle funds in the capital market as a means of short term income generation in line with the up-market.
The market was also underperforming over a decade, so the combined effect of all positive events helped in the revival of market since the reopening of market after pandemic led shut down in early 2020.
Recent slowdown in the market
The capital market in Bangladesh has been witnessing some sort of volatility and price correction over the past few months for a number of reasons.
As the economy has reopened to almost full scale, it is natural to diversify some funds from the capital market to other productive sectors.
As private credit is rising with stability in the economic front, it will also put some pressure on liquidity.
Besides, as the market has seen huge gains over the last one and a half years, some fund withdrawal and profit booking tendency is happening while some investors remain inactive to understand the market.
So, with low trade velocity and profit taking sell pressure, decline in market turnover in the short term is natural.
Meanwhile, the liquidity scenario in the banking sector has also changed.
Any change in the money market scenario will definitely affect the capital market performance as well.
However, any short term volatility in the market caused by any predictable and unpredictable macro-economic force is natural globally and the need for prudent fund managers arises in such scenarios to outperform the market.
A rational investor should look for risk adjusted moderate return, higher than bank deposit rate.
No market can sustain a bullish trend for an indefinite time period.
However, the capital market performance is expected to remain stable with several initiatives taken by the regular and stability in the macro-economic scenario.
The author is president of the Bangladesh Merchant Bankers Association (BMBA) and managing director of EBL Securities Ltd