10 March 2021
The Emerging Asia Pacific Capital Markets: Bangladesh
Although the financial markets of Bangladesh have underperformed in recent years relative to the country’s economy, accelerating regulatory reforms could lead to significant market growth.
The Emerging Asia Pacific Capital Markets: BangladeshRead more (PDF)
The 39th largest economy in the world, Bangladesh has a GDP of more than US$300 billion. Its population of more than 160 million people occupies a relatively small area, only 144,000 square kilometers.
Bangladesh experienced significant economic growth during the last two decades. Its financial markets have lagged, however, compared with this economic improvement. Equity market capitalization stood at only 14% of GDP in June 2019. Price performance has also been below par, with an average annual return of only 0.08% in the last decade. Bangladesh’s main sectors are telecommunications, financials, pharmaceuticals, consumer goods, and power and utility, and its top 20 companies make up 54% of the market capitalization. Although local investors dominate the market, foreign institutional investors have increased their participation over the years. They now contribute around 6%–8% to daily transactions.
Compared with its stock market, Bangladesh’s fixed-income market is much smaller. The government bond market accounts for 7.9% of GDP, and the corporate bond market accounts for only 0.01% of GDP. The fixed-income market is denominated in the local currency, the taka (BDT), and the country has not yet explored the opportunity of issuing debt instruments in foreign currency. The largest investors in the Bangladeshi fixed-income market are commercial banks, followed by insurance companies. Even though the taka has been stable for several decades and there are no capital controls, the bond market's foreign investment is at a nascent stage.
With new leadership at the Bangladesh Securities and Exchange Commission, much-needed reforms have begun to gain momentum. Both the equity and debt markets are poised for significant growth in coming years if corporate governance, market integrity, a quality IPO pipeline, technological improvements and listing of debt instruments, and simplified debt issuances can be ensured.
This article is from "The Emerging Asia Pacific Capital Markets: Challenges and Opportunities," published by CFA Institute Research Foundation.
About the Authors
Md Shah Naoaj, CFA, is a deputy director of the Central Bank of Bangladesh, where he works on financial sector policy issues, macroeconomic analysis, and macroprudential policymaking. Previously, he was an economist for the International Monetary Fund (IMF), where he conducted Article IV missions and co-authored many pieces on the financial sector issues of IMF member countries. Mr. Naoaj is a current board member of CFA Society Bangladesh. He holds an MBA in finance from the University of Dhaka.
Asif Khan, CFA, is managing partner and co-founder of EDGE Research & Consulting Limited. EDGE provides investment research to a large number of globally reputed fund managers, commercial banks, and development finance institutions. Mr. Khan has more than 13 years of experience working in both buy-side and sell-side roles covering frontier markets. He is also a founding board member of CFA Society Bangladesh.
Nazmul Ahsan, CFA, is head of Treasury at Midland Bank Ltd. and has extensive experience in treasury management, fixed income, and asset and liability management. Driven by his contributions on market making in fixed income, Midland Bank was awarded best primary dealer by Bangladesh Bank, the central bank of Bangladesh. Mr. Ahsan began his career at Eastern Bank Ltd., where he worked in Treasury and managed the foreign exchange and asset/liability management desk. He has supported various projects with Bangladesh Bank and other organizations to further the development of the fixed-income market in Bangladesh. Mr. Ahsan holds a BBA in finance from the University of Dhaka and is a founding board member and current vice president of CFA Society Bangladesh.