The Emerging Asia Pacific Capital Markets: Bangladesh

Abstract

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.