Bangladesh stocks hold ‘hidden gems’ for buyers, HSBC says

HSBC says Bangladesh stocks hold prospects for fund managers seeking to diversify their portfolios - and there may be “hidden gems” among the public-listed companies there.

The South Asian country has two stock exchanges - Dhaka STOCK MARKET (DSE) and the Chittagong Stock Exchange. The very best 30 listed companies by industry capitalization and liquidity in Bangladesh happen to be on the DS30 index, which is up a lot more than 65% over a 12-month period.

In a report published this month, HSBC said the Bangladesh stock market is where Vietnam was five years ago - the Southeast Asian nation is a frontier industry favorite among investors. The lender says Bangladesh is very well placed to get started on closing the gap with Vietnam.

“It really is less correlated with global macro and equity themes than Vietnam and in addition receives far less interest from analysts, creating opportunities for fund managers seeking for diversification and ‘hidden gems,’” HSBC analysts said in the report.

While the Bangladesh marketplace is comparatively small, illiquid rather than easy to access, it includes a market capitalization-to-GDP ratio of 14%, according to HSBC. The ratio actions the total worth of a country’s publicly posted stocks, divided by its GDP and may reveal whether shares in the country are overvalued or undervalued. Lots below 50% indicates market is undervalued.

“The market is illiquid, but that’s where the ability is,” said Devendra Joshi, ASEAN and frontier marketplaces equity strategist at HSBC said Tuesday on CNBC’s “Squawk Box Asia.” He's one of the co-authors of the record.

The Bangladesh currency markets has a lot more than 300 outlined companies, and only 7 stocks have market capitalization of more than $1 billion, in line with the HSBC report. The broader DSEX index has long been dominated by financial shares but the weightage of consumer and health-care businesses is increasing.

Economic growth
Bangladesh is one of the fastest-growing economies on the planet. Prior to the pandemic, the united states registered an 8.2% progress rate in 2019, in line with the World Bank.

Joshi explained that the Bangladeshi market is bigger than Vietnam and in addition growing at a quicker pace compared to the Southeast Asian country. “They'll need increasingly more expenditure to capital marketplaces if they were to sustain the expansion,” he said.

With a inhabitants of some 163 million people, the country’s GDP per capita is inching nearer to $2,000. That's set to effect a result of a change toward discretionary sectors such as for example those linked to non-essential consumer things and services, which have a tendency to rise as disposable incomes climb.

Though Bangladesh’s garments export and remittance sector have already been crucial drivers of its economy during the last 30 to 40 years, that mix is changing, according to Joshi. “Another leg of growth will probably come from the domestic consumption, the domestic engine of the economy,” he added.

In the report, HSBC also noted that Bangladesh is showing signs of diversifying away from garments by establishing infrastructure to allow companies such as for example South Korean tech giant Samsung and Japanese automaker Honda to build creation facilities. On the other hand, domestic pharmaceutical companies plus some home-grown consumer makes have started exporting to overseas markets.

Currency stability
The country’s currency, the Bangladeshi taka, has been relatively stable, Joshi said. By Tuesday afternoon, it improved hands at about 84.79 per dollar and has remained relatively rangebound during the last 12 months.

Joshi said that one reason for the stability is that there aren’t as many portfolio investors available in the market, which shelters the taka from volatility.

“From the external situation also, the country’s balance sheet noises strong, the external personal debt to GDP is pretty low - therefore the currency provides been quite steady,” he added.

The report also noted an active and deep two-way market in the dollar-taka trade has yet to develop.