Emerging market investors are weighing increasing their exposure to a tiny market: Bangladesh.
The country’s benchmark Dhaka Stock Exchange General Index has scaled new highs almost every week this year, after a stellar 62% gain in 2009.
Even in 2008, the year of the great liquidity crunch, the
Bangladeshi benchmark bucked the trend, losing only 7%. In
contrast, all other Asian markets slumped more than 40%,
according to data compiled by Mark Matthews of Hong Kong-based
Macquarie Capital Securities.
In short, Bangladesh appeared to be the only regional market
“uncorrelated” with the Western markets – a significant fact
considering that during the crisis, correlation amongst various asset
classes and between equity markets had tended to one.
Year to date, the Dhaka Stock Exchange gained roughly 25%,
crossing the 5,700 mark for the first time in its 56 year history.
Despite this outperformance, the Bangladeshi index “is on
practically no one’s radar screens,” Macquarie’s Matthews said in a
recent note to clients. As he put it: “but [it] should be”.
From the note:
* Foreigners are allowed to buy shares, but they only own 2% of the equity market
* The economy was totally unphased by the GFC. It grew by 6.3% in
2008, 6.1% in 2009, and is expected to grow by 5.7% this year and next
* Average daily turnover is 4x the Philippines, and not very far below Indonesia
The downside to this unprecedented asset boom is that Bangladesh –
historically been a victim of deep poverty and natural disasters — has
not quite been able to cope with the influx of capital. Recall, after
all, that 40% of its people live on less than a dollar a day,
by IMF estimates
The pace of the asset boom has even led to Bangladesh’s market
regulator tightening rules on bank lending to equity investors. As
Matthews explained:
"Its economic cycle is completely different from that of
any other in Asia, except perhaps Mongolia or Vietnam. It is on an
African level of development, with a per capita income half India’s and
a third Indonesia’s. But the portion of its 160m population that is
moving from subsistence conditions to market economics is increasing
exponentially, for several reasons which are discussed in this report.
It should continue to be a high growth economy for many years going
forward."
Worth noting, however, that the country’s rulers appear intent on
improving its infrastructure. Tawfiq-e-Elahi Chowdhury, the energy and
power adviser to Bangladesh’s Prime Minister Sheikh Hasina, said the
country is seeking foreign investments to the tune of $7 billion in its power sector. In a recent trip to India last week, its industries Minister Dilip Barua, urged Indian companies to invest in Bangladesh.
Global investors first took note of Bangladesh, which has just about
230-odd publicly traded companies compared with more than 5,000 in
Indian, when it appeared in the famous Next Eleven list.
Read the full story here --
FT Alphaville / Bangladesh: Asia’s hottest frontier?
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