Bangladesh’s stock market can be revived by strengthening the banking sector and settling the tussle between Grameenphone and the telecom regulator, said Hong Kong-based investment firm Asia Frontier Capital (AFC).
The AFC focuses on high growth Asian frontier economies by managing the AFC Asia Frontier Fund, through which it invests in Bangladesh’s capital market.
Improving stock market sentiment requires some very simple decisions but the question remains over whether the political will exists, it said in its annual publication “AFC Asia Frontier Fund: 2019 Review and Outlook For 2020”.
GDP growth and overall macroeconomic indicators remain stable but until the authorities can resolve the issues pertaining to the banking sector and mobile operator, which together account for 32 per cent of the index, the overall sentiment may remain soft, the report said.
“However, on a bottom up basis we expect pharmaceutical and consumer discretionary companies to do well as consumption demand should remain strong due to it being an underpenetrated market.”
Air conditioner penetration in Bangladesh is 3 per cent, refrigerator 20 per cent and washing machine 2 per cent.
“We believe that the Bangladeshi local currency will depreciate moderately in 2020 to support export growth,” it said.
The government though has maintained strongly that the local currency will not be devalued.
Export growth weakened in the last few months of 2019.
However, the report does not expect a sudden devaluation but a more gradual 3 to 5 per cent depreciation going forward.
“Any positive moves on the policy front regarding Grameenphone or the banking sector can lead to a big re-rating as the macro fundamentals and earnings growth remain stable.”
The recent market slide resulted from the Grameenphone-regulator tussle and health deterioration of the banking sector, leading to the rise of negative sentiments across the market.
Grameenphone, the largest listed company in the DSEX in terms of market capitalisation, is currently going through a major legal battle with the telecom regulator regarding taxes.
This issue is not new but has heated up in 2019, which has led to weaknesses.
It has not only brought down Grameenphone’s stock price but also negatively impacted the broader investor sentiment.
The other dampener on investor sentiment has been issues centring the banking sector, which accounts for almost 18 per cent of the index.
The government over the past year or so has taken decisions that have impacted funding costs of the banking sector, leading to pressure on net interest margins as well as loan growth.
Furthermore, with worries of rising default loans within state-run banks, fear and uncertainty have spread across the banking sector, which has led to a drop in private sector credit growth.