Bangladesh capital market: Looking back and forward
Fifty years of Bangladesh is marked with a few significant achievements. The country became a $400-plus billion economy in 2021. Per capita income rose to $2,554 in FY21, which is higher than our neighbouring countries, including India.
Foreign reserves hit a record high of $48 billion while export increased by 30 per cent, imports by 51 per cent and revenue collection by 26 per cent year-on-year in 2021.
The International Monetary Fund forecasts Bangladesh economy to grow by 6.6 per cent in FY2022. Bangladesh may grow even at a faster pace in 2022 if the vaccination rate rises and the effect of the pandemic is well contained considering the emergence of a new variant. Bangladesh is set to become the 24th largest economy out of 191 countries by 2036, according to the Centre for Economics and Business Research.
The capital market also had a remarkable year in 2021. The Dhaka Stock Exchange (DSE) witnessed a return of more than 20 per cent two years in a row. In fact, the DSE's 25.1 per cent return in 2021 was one of the best in the world.
The DSE also witnessed a decade-high daily average turnover and an increase in market capitalisation to GDP ratio. With a dynamic team at the Bangladesh Securities and Exchange Commission (BSEC), the market is turning a critical corner with several structural changes that can shape the future of the capital market.
The BSEC approved 22 companies, including 16 banks and non-bank financial institutions, to float bonds worth $1.5 billion last year.
The economy was still recovering from the pandemic scars last year. The government, however, was prudent in implementing timely measures and announced incentive and stimulus packages of more than $20 billion. The excess liquidity was a concern as the private sector credit growth was lacking momentum and was way below the central bank's target. Going forward, inflation caused by global commodity price hikes and non-performing assets piled up in the financial sector may cause a headache for the central bank.
2022 outlook for emerging and frontier markets
Frontier markets, especially Asians, were among the top 10 performing markets globally in 2021. Asian frontiers also outperformed global and regional peers by a large margin. This solidifies the idea of investing in frontiers with a strong economic footing.
Markets globally had a bull run over the past 1.5 years and now, global investors are wary of interest rate increases. Thus, more diversification into the frontier and emerging economies with strong macro fundamentals are likely to see funds inflow in 2022.
Sectors that may see FDI participation
Readymade garment, telecommunication, technology, consumer, and other manufacturing industries should see the most participation. The investment by Softbank in bKash reflects the confidence of foreign investors with respect to Bangladesh's growth story.
Bangladesh attracted more than $20 billion in investment proposals since the beginning of the pandemic. This reflects the growing investor appetite for investment in Bangladesh. The Bangladesh Investment Development Authority has integrated its investment services into a single-window facility that offers 56 e-payment-enabled services of 18 government agencies through its One Stop-Service platform.
The Bangladesh Economic Zones Authority is planning to set up more than 500 industrial plots on 1,150 acres of land at the Bangabandhu Sheikh Mujib Shilpa Nagar in Mirsarai, Chattogram. It has already prepared 140 plots for factories while 78 local and multinational companies applied for more than 250 plots. Japanese investors alone have sought 50 plots.
The Bangladesh Hi-Tech Park Authority has allotted land and space to 21 companies at three hi-tech parks for working in hardware, software, internet of things, business process outsourcing, and research and development. This is expected to bring in more than $1.5 billion investment and employment opportunities for thousands of skilled resources.
Possibilities of outcome of demutualisation and Chinese investments
While the BSEC pushes forward with structural changes, demutualisation is starting to bear fruits. However, the Chattogram Stock Exchange (CSE) is yet to get a strategic partner whereas the DSE has been ahead of its local peer. Even so, investors are yet to get the benefit of successful transfer in corporate governance, advanced technology, and operational excellence that they had hoped from the Chinese investors in the DSE.
Expectations and challenges for 2022
Both exports and imports are growing fast. The demand for workers has grown in the countries that are our main sources of wage-earners' remittances. As the interest rate on loans is capped at 9 per cent, the Bangladesh Bank is expected to ensure enough liquidity to facilitate the growth of private sector credit.
The stock market is likely to grow as there are strong initiatives to get some large public and private companies listed. The secondary market for fixed-income securities will get bigger.
Fundraising by companies through initial public offerings last year hit roughly $195 million, the highest in a decade. Fourteen companies raised about $145 million and Beximco raised about $50 million through sukuk in 2021. Many bonds, especially zero-coupon bonds, issued by banks and financial institutions, corporate bonds and sukuks are in the process of getting listed along with Treasuries.
Forex reserves and inbound remittances will be under pressure despite export growth while the BB's challenge will be to contain inflation, NPL and the volatile exchange rate.
2021 was a decent year for Bangladesh's capital market mainly due to the participation of investors, consolidation of stock prices and low-interest rates on bank deposits. Going forward, the challenge will be to keep the investors participation spontaneous in 2022 amidst the omicron wave and possible emergence of a new variant.
The author is an economic analyst.