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Looking back, looking forward
Mamun Rashid
  • Published at 11:21 pm January 27th, 2019
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Growth needs nurturing Bigstock

We need to adopt new measures to promote Bangladesh’s capital market

We heard very little about our bourses in 2018, which is obviously good news to some extent. However, the performance of the capital market last year somehow could not match the level of expectations of potential investors and stakeholders.

Even though the government strived to create a laundry list and made progress in implementing surveillance in the market in previous years, through their pro-active interference and by tweaking the corporate governance guidelines, the capital market is still short of notable performance.

The IPOs, offered in the capital market during 2018, were not from reputed organizations or blue-chip companies. Instead, most of the IPOs offered reflected a low-market capitalization. Hence, people did not have much interest to drive these shares’ floatation and capital market launching in Bangladesh. On top of that, the exchange rate, as well as interest rate volatility of theBangladeshi taka, created confusions and uncertainties among the investors. This resulted in an outflow of money from the country, putting further pressure on the banks’ deposit base.

Eventually, banks were forced to raise the deposit rate in order to improve the liquidity situation within the banks. As a result, the capital market suffered. Investors were more interested in converting their low earning equity-stakes into cash and depositing the money into the banks with the hope of earning higher returns with higher deposit rate. The increase in the dollar rate and fluctuations in the exchange rate influenced institutional investors to remit their profit to their own coffers. Overall, these activities led to few sell-offs by foreign investors and the liquidity crisis of the market prevented the buyers to invest further.

Last year, when the index plunged from ±6500 to ±5500 points, there wasn’t much high interest from foreign institutional investors. Earlier, companies like Islami Bank, South East Bank, Summit, Beximco, and Renata used to attract a large amount of foreign portfolio investments into the country. However, the recent predicament of the banking sector has put a dent on the foreign institutional investor’s interest. In spite of our regulators trying to come up with surveillance expertise and corporate governance guidelines, not much has been done regarding the maneuvering and manipulation in the capital market.

Another challenge for our market is that it is driven by small investors. Bangladesh has not yet been able to develop a capital market, which can be driven by the large portfolio investors or large-cap stocks. Despite the frequent initiatives of the Capital Market Training Institute, as well as the Finance Ministry and BSEC, to provide proper knowledge to the investors, we still notice small investors jumping into the market without basic investing know-hows or carrying out any background research.

Additionally, market participation of institutional investors and asset management companies were relatively low last year. As a result, the market still remains broker-driven and rumour-driven, with investors lacking an adequate level of market knowledge. There were certain vested-interest groups who seemed to be manoeuvering the market, causing investors to worry about their investments continuously.

Over the years, we have witnessed demutualization, issuance of the corporate governance guideline, the announcement regarding watchdog agencies’ surveillance capacity -- but none of these moves placed Bangladesh in the favourites list of foreign institutional investors.

When it comes to the capital market, our country is yet to become Vietnam, or Sri Lanka, or even Pakistan. Even though some institutional investors are interested in participating in our growth trajectory, but the concern regarding the policy regime, foreign exchange regime, investment capital, withholding tax, tax on dividend and several other issues, are acting as a major impediment in their way. The situation gets more complicated as the number of available blue chip companies in the Bangladesh capital market is very limited.

BSEC is quite jittery about the small investors. However, nothing significant has been done in bringing large operators into the capital market. There have not been any constructive steps taken by the regulators or concerned ministries to attract large-cap investments into the market. It is evident from the fact that the large telecom, pharmaceuticals, and other local corporates are shying away from the bourses.

Large local corporates and commodity trading companies are keener to invest in asset management companies, banks, and insurance companies while they are hesitant in listing themselves in the capital market. The reason might be that they do not want to share their profit with the public or they find it easier to raise debt than equity.

Bangladesh’s growth is still predominantly driven by debts and it makes me sceptical regarding our journey towards a trillion-dollar economy. There is not a single economy in the world which has been able to graduate from being a billion-dollar economy into the trillion-dollar ones without the presence of a thriving capital market with large market capitalized companies.

In order for Bangladesh to evolve from a $250bn economy into a trillion-dollar economy, it is crucial for us to have a vibrant capital market and active participation of large companies.

The newly elected government has pledged to improve governance and declared that they will have zero tolerance towards corruption in the upcoming years. Hopefully, in the next five years, the government will focus on disciplining the financial sector, which includes the capital market.

Focus needs to be put on the valuation process of the companies, which want an exit from Bangladesh.

Even though the present government has been mandated with the absolute majority, there are lots of “ifs” and “buts” put up by a certain quarter regarding the process through which it has been done. If we really feel that politics has a direct impact on the economic growth and capital market, then we have to be vigilant regarding how we can reform our policy regime and how we can update the archaic laws and regulations of the country, mostly in relation to-inward-outward remittance, valuation, and capital issuance.

Mamun Rashid is a leading economic analyst.

https://www.dhakatribune.com/opinion/op-ed/2019/01/27/looking-back-looking-forward-2
 
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@Nilgiri that's a decent read.

I agree, very well researched and summarized. BD govt must tackle the underlying issues well (should have done so 10 years back preferably...but its better late than never).

Author is right that there needs to be a good smooth process to help those leaving...it cant be just about attracting people in (given this stuff has lot of thoroughfare, its not only successes + intermediates.... but lot of failures too, thats the whole thing with hot money, you win some, you lose a lot).

When you show credible reform/understood norms like found in rest of emerging markets, you get returnees (and they often return with more bulk/collaboration/experience to make next FII a success). In fact its often better to have people that are returning after getting beaten a few times, rather than only fresh faces....so you gain a good pool of experienced spearhead investors in what works long term in BD to help steer others/spark interest that way over time. If you make it hard/arduous to leave, they grow wary of returning...and will just stick to proven markets outside BD more.

Hope Kamal and everyone else thats relevant has good long look at these issues and dont just pass the buck/kick the can....but appoint good people to build up the process long term for investors of all kinds.
 
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I agree, very well researched and summarized. BD govt must tackle the underlying issues well (should have done so 10 years back preferably...but its better late than never).

Author is right that there needs to be a good smooth process to help those leaving...it cant be just about attracting people in (given this stuff has lot of thoroughfare, its not only successes + intermediates.... but lot of failures too, thats the whole thing with hot money, you win some, you lose a lot).

When you show credible reform/understood norms like found in rest of emerging markets, you get returnees (and they often return with more bulk/collaboration/experience to make next FII a success). In fact its often better to have people that are returning after getting beaten a few times, rather than only fresh faces....so you gain a good pool of experienced spearhead investors in what works long term in BD to help steer others/spark interest that way over time. If you make it hard/arduous to leave, they grow wary of returning...and will just stick to proven markets outside BD more.

Hope Kamal and everyone else thats relevant has good long look at these issues and dont just pass the buck/kick the can....but appoint good people to build up the process long term for investors of all kinds.
People lost confidence in the stock market after the crash in 2011. Govt need to rebuild the trust of people in the capital market. Many big corporations are afraid to get enlisted.
 
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People lost confidence in the stock market after the crash in 2011. Govt need to rebuild the trust of people in the capital market. Many big corporations are afraid to get enlisted.

Well crashes happen. The point is to learn from what the investor sentiments are for not returning.

Asian Financial Crisis for example was terrible (Esp for Indonesia and Thailand)...but beyond learning from the core reasons as to the "why" i.e its bad to generate (and suppress/ignore) certain bubbles ....a sometimes even more valuable lesson (in the recovery after crash) was to learn from the capital flight process that happened itself (i.e once things set into motion) and not have too much restriction/brutal levers (i.e what gummed up the works too much and made people never return long term etc). Indonesia et. al eventually fixed this and their market cap is back to doing good and largely commensurate with their larger GDP/wealth again:

https://data.worldbank.org/indicator/CM.MKT.LCAP.CD?locations=ID-TH

....and its unlikely a crash will happen again...and if it does, it wont have the same longer term mistakes afterwards....so thats all good for the economy.

It is basically a balance so that people return when things are settled. Too much of it and its too hot/speculative even when market is going good (and you generally do not want that)....too little of it and there is permanent long term (negative) sentiment that builds up after a crash....or gets too much in the way with simple procedural profit-taking/reshoring etc....i.e any exiting that needs coherent, robust, (standardised to international norms and thus more predictable) valuation.

BD must similarly learn from both what caused the crash, but also the processes in place during and after the crash (from the investor perspective)...and find the right balance.

@Marine Rouge @Viet
 
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There is not a single economy in the world which has been able to graduate from being a billion-dollar economy into the trillion-dollar ones without the presence of a thriving capital market with large market capitalized companies

From $250bn to $1tn will take 15 years (in 2034/2035) at 10% GDP compound growth.

With 7.5% rate, after 20 years BD will have $1tn GDP.

I wonder, how much the industry and infrastructure will be developed by then.

What will be BD's new export oriented industries after 10 or 20 years beside RMG.

What will be BD's competitive advantage in the international market by then.

The local use and export of the cheap labor will not work by then. Things will be well AI dependent by than in other countries.

So BD has to do something extra to grab the share in the international market. Otherwise, the GDP will not grow well after a certain period.

So BD needs new industries, the real ones, not virtual ones only, as I doubt BD can compete in international market with virtual industries.

May be what China is not going to manufacture because of raising labour cost, BD can continue from there. But there are also many other countries to compete with BD.

As China is investing in different and distant countries (like Africa), I assume that BD will not have much competitive advantage to take the share of what China is going to stop manufacturing.

So things are not easy, I do not know why Bangladeshis are counting so confidently on distant future, like after 20 to 25 years.

I think the the living standard will raise and the poverty will be eliminated by then in BD, but BD will not be special comparing to its neighbors.

People lost confidence in the stock market after the crash in 2011. Govt need to rebuild the trust of people in the capital market. Many big corporations are afraid to get enlisted.

It was a planned crash.

At first they (Salman F Rahaman co.) invested at low cost

Then they created a hype that everyone needs to invest in market. People were greedy and stupid. Also many people did not have proper job, they encourage them to invest.

Then when the prices gone highest, they sold all (Salman F Rahaman co.) and people got cheated.
 
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I agree, very well researched and summarized. BD govt must tackle the underlying issues well (should have done so 10 years back preferably...but its better late than never).

Author is right that there needs to be a good smooth process to help those leaving...it cant be just about attracting people in (given this stuff has lot of thoroughfare, its not only successes + intermediates.... but lot of failures too, thats the whole thing with hot money, you win some, you lose a lot).

When you show credible reform/understood norms like found in rest of emerging markets, you get returnees (and they often return with more bulk/collaboration/experience to make next FII a success). In fact its often better to have people that are returning after getting beaten a few times, rather than only fresh faces....so you gain a good pool of experienced spearhead investors in what works long term in BD to help steer others/spark interest that way over time. If you make it hard/arduous to leave, they grow wary of returning...and will just stick to proven markets outside BD more.

Hope Kamal and everyone else thats relevant has good long look at these issues and dont just pass the buck/kick the can....but appoint good people to build up the process long term for investors of all kinds.

I dont see Bd authority had regular daily , weekly, monthly and yearly report about their economic data release Performance at exact times, not even their economic fiscal policy can be known for market audiences at exact times so they can made proper arrangement and analysis beforehand. I am not mentioning about their quality data gathering and research methods. This all very important to nurture market stock exchange. I am even not mentioned about their data openness toward foreign research such as IHS Markit or OECD survey research its all important for their credibilities
 
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I dont see Bd authority had regular daily , weekly, monthly and yearly report about their economic data release Performance at exact times, not even their economic fiscal policy can be known for market audiences at exact times so they can made proper arrangement and analysis beforehand. I am not mentioning about their quality data gathering and research methods. This all very important to nurture market stock exchange. I am even not mentioned about their data openness toward foreign research such as IHS Markit or OECD survey research its all important for their credibilities

Some of Bangladesh wage market and fiscal policy research found here and this think tank is a non-profit organization. There are dozens of outfits like this.

http://cpd.org.bd/our-research/ongoing-research/
 
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I dont see Bd authority had regular daily , weekly, monthly and yearly report about their economic data release Performance at exact times, not even their economic fiscal policy can be known for market audiences at exact times so they can made proper arrangement and analysis beforehand. I am not mentioning about their quality data gathering and research methods. This all very important to nurture market stock exchange. I am even not mentioned about their data openness toward foreign research such as IHS Markit or OECD survey research its all important for their credibilities

Well thats part of it for sure (hence why I have said BD should be making real effort to join SDDS, rather than be content in GDDS)...other part is actual stuff they have to have past the brochures that billu is a fan of and posting now to compensate.

Stuff like core competency procedures in valuation during capital exit etc. The author actually seems to have researched the main sticky points that should be 1st priority. No one wants to be stuck up having to bribe some bureaucrats (for better/accurate valuation) when they want to re-shore profits and the like....there should be a standardised, accountable, neutral process that follows international norms of the countries BD aspires to be like in future. This means putting the right people in the right places and creating the long term institutional backbone for it.....rather than it being run like a personal pet political project...like things generally are in BD.
 
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It was a planned crash.

At first they (Salman F Rahaman co.) invested at low cost

Then they created a hype that everyone needs to invest in market. People were greedy and stupid. Also many people did not have proper job, they encourage them to invest.

Then when the prices gone highest, they sold all (Salman F Rahaman co.) and people got cheated.
Yes...the likes of Salman F Rahman, Falu, Akbar Sobhan were involved in it. I remember it painstakingly well, as my father lost quite some money. Since then he hasn't been active in stock market.
 
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Yes...the likes of Salman F Rahman, Falu, Akbar Sobhan were involved in it. I remember it painstakingly well, as my father lost quite some money. Since then he hasn't been active in stock market.

Sounds horrid. Were any of these people punished? @Skies
 
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So current finance minister Kamal was part of this?
I have never heard Kamal being accused of it. Salman F Rahman was indeed part of it and he is an advisor of Hasina.

Falu, a BNP politician and businessman was part of it whom @Skies won't mention.

These are said to be the masterminds of the crash

Salman F Rahman, former DSE president Rakibur Rahman, SEC chairman Ziaul Khandaker, SEC member Mansur Alam and BNP politician Mossadek Ali Falu

https://en.wikipedia.org/wiki/2011_Bangladesh_share_market_scam#Probe
 
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So current finance minister Kamal was part of this?

https://www.thedailystar.net/news-detail-187320
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https://www.thedailystar.net/news-detail-181643
upload_2019-1-30_16-29-12.png


upload_2019-1-30_16-35-44.png


I have never heard Kamal being accused of it. Salman F Rahman was indeed part of it and he is an advisor of Hasina.

Falu, a BNP politician and businessman was part of it whom @Skies won't mention.

These are said to be the masterminds of the crash

Do not have good idea about that. May be he was involved.
 
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