Home ›› 07 Dec 2021 ›› Front
Riding the roller coaster of risks and rewards, the capital market has come to a classic stage, with 345 listed firms and Tk 5,36,494 crore market capitalization – all pointing to a glitzy tomorrow.
Starting with a meager nine listed companies and a total issued capital of Tk 13.75 crore following the independence, the country’s premier bourse – the Dhaka Stock Exchange – has grown 38 times in firm size while the present market capitalization is 17.7 per cent of the GDP.
Analysts say the market has gained popularity among small and medium investors, resulting in an increase in the capital market depth reflected in its indicators.
In June this year, HSBC, one of the largest banking and financial services institutions in the world, said Bangladesh’s stocks hold opportunities for fund managers looking to diversify their portfolios and there could be “hidden gems” among the public-listed companies there.
Dhaka Stock Exchange Director and former president, Shakil Rizvi told The Business Post, “First in 1954, East Pakistan Stock Exchange Association Limited was formed. As a public limited company, the name was changed to East Pakistan Stock Exchange in 1962.”
Again on May 14, 1964, the name of East Pakistan Stock Exchange Limited was switched to Dacca Stock Exchange Limited.
Although incorporated in 1954, the formal trading started in 1956 at Narayanganj after obtaining the certificate of commencement of business.
But in 1958 it was shifted to Dhaka and started functioning in the Narayanganj Chamber Building in Motijheel commercial area.
According to the capital market analysts, the market has been on the rising trend due to various initiatives of the government, regulators, and the stock exchange.
Many new investors are bringing in idle money to the capital market as an alternative field for investment, which shrank amid the pandemic.
The recent steps taken by the commission, aimed at protecting the retail investors’ rights and regaining their confidence, have begun to yield positive outcomes, stock market regulator BSEC Chairman Shibli Rubayat-Ul-Islam told The Business Post.
“We will not back down from the goal of establishing good governance in the capital market,” he said.
The BSEC chief also said Bangladesh’s capital market is the best for investment for four reasons – fast economic growth, shock-absorbing capability against global volatility, stable foreign exchange rate with favourable interest rate trend and no pre-approval for repatriation.
Historical background
After the independence of Bangladesh, the Dhaka bourse had started operation in 1976 with nine listed companies having a total issued capital of Tk 0.14 billion, which was 0.14 per cent of GDP, as per a study of the Bangladesh Bank in 2016.
From that period, the stock exchange has continued its journey, and at the end of 2010, the market capitalization reached as high as $ 47 billion, which was 47 per cent of the country’s GDP.
After November 2010, the stock market witnessed a downward correction, and at the end of June 2015, its capitalization came down to $ 41.78 billion which was 24.04 per cent of country’s GDP.
Accordingly, the value of stock traded at the same time stood at 7.42 per cent of the GDP.
Market crashes and recovery In its journey, the market witnessed two unprecedented crashes –one in 1996 and the other was in 2010-11.
In June 1996, there was a large surge in the DSE, with all share price index standing at 959.0 points from 834.8 points in January 1995; after that, the index started to rise sharply and stood at 3,065 points in November of the same year.
The market observed a rise of about 220 per cent, whereas there was no remarkable improvement in the fundamentals of the listed companies.
The market, however, experienced a crash in December 1996 and the index started to decline significantly since then.
In April 1997, the index decreased to 957 points, stabilizing the market at about the same level as it had been just 10 months back.
The second wave of historical crash happened at the very end of 2010-11.
On December 5, 2010, the DSE General Index (DGEN) reached its all-time high at 8,918.51 points following a sharp rise in October-November period of 2010.
Subsequently, the DSE witnessed a dramatic decline.
Due to a huge loss in the secondary market during the 2010-2011 stock market crash, small investors in Bangladesh involved themselves in IPO investment.
On September 9 this year the market capitalisation of the Dhaka bourse hit a fresh all-time high at Tk 5,86,319 crore, which was Tk 3,50,800 crore in December 2010.
The market cap rose by Tk 2,35,519 crore or 67 per cent in the last 11 years.
Market capitalization, or market cap, is calculated by multiplying the total number of a company’s outstanding shares with the current market price of shares.
Best performer in Asia
Bangladesh’s capital market yielded the highest returns in 2020 among Asia’s emerging economies. Bangladesh’s bourses were the best performer last year among its peer countries with the highest return of 23 per cent while the return was 15.5 per cent in India, 5.2 per cent in Pakistan, 9.5 per cent in Sri Lanka, 14.6 per cent in Vietnam.
The Dhaka bourse continued its record-breaking bullish trend and reached a new height of 7,368 points on October 10 this year. It was the highest since its inception in January 2013, and the lowest was 3,604 points on March 18, 2020.
The Bloomberg research data shows that DSEX, the key index of the DSE, posted robust growth by 83 per cent to stand at 6,596 points as of August 5 of 2021.
The data reflects that Pakistan key index, KSE 100, is back in the game with 75 per cent followed by 68 per cent of Japan Nikkei 225, 55 per cent of Chinese SZSECOM, 43 per cent of UK FTSE100, 23 per cent of Malaysia FBMKLCI index, and 21 per cent of Hong Kong HIS.
On the other hand, the price-to-earnings (P/E) ratio of the Dhaka Stock Exchange is lucrative for investment as it stands at 16.9 as of November 30. The PE ratio refers to a valuation ratio of a company’s current share price compared with its earnings per share.
Demutualization and journey with Chinese consortium
After the stock market crash in 2010, stakeholders demanded that the government ensure monitoring to stop manipulation and bring transparency in the capital market to the Exchanges Demutualization Act 2013 passed by the Parliament in April 2013.
According to the Stock Exchange Demutualization Act, 40 per cent of the shares of the DSE were credited to the DSE members’ accounts, while the remaining 60 per cent are kept in a blocked account. After selling 25 per cent of its shares from the blocked account to the strategic investors, the bourse would float the remaining 35 per cent through an initial public offering (IPO)
The much-anticipated strategic partnership agreement between the Dhaka Stock Exchange and the Chinese consortium of Shenzhen Stock Exchange and Shanghai Stock Exchange was affected from September 2018.
The DSE authorities handed over 25 per cent of DSE shares to the consortium on the day. The Chinese consortium paid Tk 947 crore to the DSE for the shares.
Experts and stakeholders believe the consortium is helping the DSE become a well-regulated and technically sound stock market.
Meanwhile, the port city bourse, Chittagong Stock Exchange (CSE), which is the first bourse to introduce the online trading system in the country, started journey on October 10, 1995. It became a demutualized Exchange on November 21, 2013.
“CSE is playing a pioneering role in the development of the capital market in Bangladesh. We are working to enrich our stock market by introducing new products and services,” said its acting Managing Director Md Golam Faruqe.
