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Strong bond market to increase liquidity

Chief executive of Timurid Investment stresses need for risk management instruments

Md Fazlur Rahman
The lack of a strong bond market in Bangladesh is a problem that fuels borrowing costs for both the private and public sectors, an analyst says. “The current budget deficit is draining liquidity further and crowding out real investments. Unless we allow capital to freely participate, it would be very difficult to manage the fiscal policy,” says Maruf H Khan Noorpuri, chief executive of Timurid Investment Management Company (TIMCO) that manages the Stichting Bangladesh Fund.
The fund is structured under the laws of the Netherlands and owns Bangladesh Asset Holding Company that enables foreign investors to invest in the Bangladesh capital market, Khan says.
It is carefully constructed to offer investors a high level of transparency, liquidity and support from some of the best legal, administrative, accounting and custodian services, Khan adds.
He recently sits for an interview with The Daily Star in Dhaka.
TIMCO launched the Stichting Bangla-
desh Fund, offering global investors access to equity at Dhaka Stock Exchange and fixed income markets in Bangladesh.
The fund will provide an actively traded top-down risk managed portfolio of equities, credit instruments and selected preIPOs and will benefit from the unrivalled knowledge and expertise in the Bangladesh market, supported by a team of professionals in its new office in Dhaka.
Khan, who has 29 years of experience in the field in London and New York, says there is also a lack of fixed income and alternative market instruments in Bangladesh.
“The corporates often borrow at higher rates from the banks. The government should enable foreign institutional investors to be able to freely participate in the treasury bill market.”
“The government issues bonds among primary dealers, but there is no marketplace here. A market should be opened so that people can trade in bonds, which will give them more options to put in their money rather than being forced to participate in stock-trading.”
The 49-year-old says the current liquidity condition of the market is extremely poor.
“There are no risk management instruments available either, like the simple index future, the ability to sell short and call-put options.”
“The foreign and local investors will be more encouraged to invest in Bangladesh if regulators allow these risk and liquidity management instruments.”
Khan says Bangladesh must act fast to attract foreign investors, as there are many other emerging economies like India, Vietnam and Brazil who are attracting foreign investors with the right policies and environment.
He says the number of listed companies compared to the size of the economy is very low here. “To increase the depth and breadth of the market it is essential to encourage good quality companies to come through IPOs and secondary offerings."
An efficient and market based price discovery mechanism is necessary for this purpose, Khan adds.
He says corporate transparency is not satisfactory in Bangladesh. “Many companies do not disclose much about their business condition to shareholders."
Also, auditors are not playing a proper role in enhancing the quality of reporting, he says.
"A lack of corporate data hinders the decision making process and imposes a
cost on the decision makers.”
He says the country's macroeconomic data has no calendar and the quality and consistency of information is debatable. “This aspect has to be improved substan-tially.”
A graduate from London School of Economics, Khan says transaction costs are very high in Bangladesh. To make the market efficient, costs need to be reduced, he adds.
"Execution speeds are also poor. Traders should be trained to increase their execution speeds. Reducing the execution time and costs will increase the number of market participants and the amount of liquidity.”
He says the capital market has a crucial role in becoming a platform for mobilisation of funds for both the public and private sectors.
“So, it should be well-regulated and policies should help growth and lead the market in the right direction."
Khan also says most people in Bangladesh do not know about the risks associated with the stockmarket. “They need to leam.”
fazlur.rahman@thedailystar.net