Bangladesh’s stock market a concealed gem: HSBC
Because of the potential of the country's listed companies, HSBC has termed Bangladesh's stock market as a "hidden gem" for fund managers.
Although Bangladesh has higher earnings growth, the sell-side remains limited, the British multinational investment bank said in a report on the Asia frontier styled, "Bangladesh at 50: prepared to close the gap with Vietnam".
With market cap-to-GDP ratio of just 14 %, the united states deserves more attention than it gets, it added.
Although the marketplace is small, illiquid rather than that simple to access, so was Vietnam's five years back.
Besides, both markets were similar in size until 2015, but Vietnam's has grown four times in proportions since then.
"We think Bangladesh is ready to close the gap as the united states is less correlated with the global macro and equity themes than Vietnam and in addition receives much less attention from analysts, creating opportunities for fund managers looking for diversification and hidden gems," the bank said.
Large Vietnamese companies are covered by the sell-side but this is simply not the case on Bangladesh, that is a fertile ground for fund managers.
Bangladesh's currency markets is where Vietnam's was five years back and is well positioned to get started on closing the gap.
"Bangladesh is on a similar growth trajectory to Vietnam, the frontier market we've long favoured which now has got higher trading turnover than Singapore," HSBC said.
Moreover, Bangladesh includes a larger economy and population that are growing at a faster pace despite power shortages, poor infrastructure, a banking sector fighting soured loans, and political issues.
The country also offers a sound macro position and robust external balance sheet while its external debt is low and forex reserve coverage is high.
Regarding the neighborhood banking sector, HSBC explained the amount of non-performing loans (NPLs) is above 8 per cent, centred around agriculture, large industries, and garment companies.
The main issue is a substandard credit information system while recovering loans is complex and frustrating.
"The weak asset quality of Bangladeshi banks, specifically in the general public sector, remains a problem," it added.
Even so, Vietnam's banks used to truly have a similar problem with NPLs but because of solid growth in profitability, their balance sheets are actually stronger.
HSBC went on to say that Bangladesh's pharma market gets the probable to cross $6 billion simply by 2025 as the federal government is easing its drug approval policies.
The country sources most of its recycleables from China and India but that's set to improve as the federal government is establishing an industrial park to create active pharmaceutical ingredients.
Furthermore, leading companies have secured US FDA approval, providing them with usage of high-margin western healthcare markets, it added.
Bangladesh is one of Asia's most exciting long-term demographic stories, the report said.
"With a population of around 165 million -there are as much Bangladeshis as there are Thais and Vietnamese combined -we think the united states is on the cusp of an professional revolution as incomes rise and technology plays an ever-increasing role in the economy."
Urbanisation, smaller households and more women at the job are powerful consumption drivers that support high levels of growth, it said.
Bangladesh has posted constantly high monetary growth for ten years.
"More importantly, the volatility of growth has been below the regional average. For a country facing such big challenges -infrastructure, power, poverty, and floods -Bangladesh's economy has became very resilient," HSBC said.
Bangladesh includes a strong fiscal position and a robust external balance sheet. Additionally it is among the least-exposed economies in your community to portfolio flows, sheltering its exchange rate from volatility.
Vietnam has managed to get easier to setup a business and simplified land registration and loan processes. This makes the marketplace more appealing for FDI.
"Bangladesh still lags Vietnam but is making efforts to increase the ease of conducting business," the report said.
Predicated on the Worldwide Governance Indicators, Bangladesh scores higher in accountability, but Vietnam scores better on all the indicators. Both countries have made progress in conditions of corruption control, it said.
