Bad loans, forex volatility
FROM PAGE B1
THE EQUITY STORY
Previously, HSBC Global Research termed Bangladesh’s stock market as a “hidden gem” considering its potential for growth.
But in its latest report, HSBC said the floor prices on stocks are a major overhang for the market and are one of the reasons for its recent unimpressive performance.
“The process of price discovery and the amount of liquidity are the major risks for Bangladesh’s stocks,” it said.
The Bangladesh Securities and Exchange Commission launched the floor price mechanism for the first time in March 2020 and a second time in July of 2021 with the aim of halting the freefall of market indices.
With floor price restrictions, prices cannot fall below a certain level and this impedes price discovery and dents investor confidence. So, it is no wonder trading volumes have fallen significantly from their highs in 2021.
“But with a market cap-to-GDP ratio of only 19 percent, down from around 41 percent in 2010, we think Bangladesh deserves more attention than it gets,” HSBC said.
“Yes, the market is small, illiquid, and not that easy to access, but so was Vietnam’s five years ago. The two markets were similar in size until 2015, but Vietnam’s is now four times larger than what it was back then,” it added.
An attractive point is that Bangladesh is less correlated with global macro and equity themes compared to Vietnam and also receives far less attention from analysts, creating opportunities for fund managers looking for diversification and “hidden gems”.
HSBC Global Research pointed out that another issue holding back the market is that few companies have listed in Bangladesh since 2020, raising a combined $96 million.
BANKING SECTOR DYNAMICS
The banking sector is currently facing a double challenge of slowing deposit and credit growth coupled with rising non-performing loans.
“But looking beyond this, we expect banks to benefit from rising credit growth fuelled by high infrastructure spending, investment in the power sector and higher capital expenditure by companies setting up manufacturing units,” HSBC said.
DYNAMIC DEMOGRAPHICS
Bangladesh is expected to be the ninth-largest consumer market by 2030 ahead of Germany and the UK, and most of this is powered by its demographic dividend.
With this backdrop, the report said investments in areas like health, education and skills could make the best use of this “demographic window of opportunity”.
MACRO BACKDROP
A decade high inflation rate and volatile food and energy prices are the key drags on the economy of Bangladesh while rising exports and foreign direct investment, along with moving up the value chain in terms of goods exported, are key growth catalysts.
Also, the country remains the preferred location for many labour-intensive manufacturers given its cheap labour and strategic location in Asia, HSBC added.