Bangladesh stock market: 3rd largest in South Asia

Bangladesh’s stock exchange is the 3rd largest exchange in South Asia (EEMA) (VPL), with its market capitalization falling directly after the Indian (EPI) and Pakistani (PAK) stock exchanges. In the US, exchange-traded funds such as the iShares MSCI Frontier 100 ETF (FM), and the Columbia Beyond BRICs ETF (BBRC) have about 5% exposure to the Bangladesh stock market. Stocks included are Square Pharmaceuticals Ltd. (DSE: SQURPHARMA), BRAC Bank Ltd. (DSE: BRACBANK), Grameenphone Ltd. (DSE: GP), Olympic Industries (DSE: OLYMPIC), and Beximco Pharmaceuticals Ltd. (DSE: BXPHARMA) (BXP.L).

Market capitalization: up 50% over 4 years

The Dhaka Stock Exchange has come a long way from its 2011 abyss. Market capitalization stood at $31.8 billion in FY13. It has already grown to about $49 billion currently. “The biggest changes have been in terms of regulation and market transparency,” remarked Majedur Rahman, Managing Director of the Dhaka Stock Exchange in a recent discussion with Frontera. Notable changes include:

  1. The revival of the Bangladesh Securities and Exchange Commission (BSEC) over the years, and;
  2. The demutualization of the Dhaka Stock Exchange which took place in 2013; ownership, to a large extent has been separated from management.

Reforms have kicked in

Previously, the broker-dealers owned the Dhaka Stock exchange, Rahman told Frontera. In 2013, under an act of the Parliament, the stock exchange was demutualized with 40% of the ownership staying with the broker-dealers, and 60% being offloaded to strategic partners, the public, and institutions. Since then, a lot of key regulations have been passed including:

  • In 2013, the BSEC introduced the TREC (Trading Right Entitlement Certificate) Regulations for traders.
  • In 2015, the DSE (Dhaka Stock Exchange) and the CSE (Chittagong Stock Exchange) introduced new listing regulations.
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Dominant sectors

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Key drivers for the Dhaka Stock Exchange over the past few years have been the economy growing at a consistent growth rate of above 6% over the last 7 years, combined with the government’s initiatives to list state-owned enterprises. There are currently 298 listed companies on the Dhaka Stock Exchange with companies from the Insurance (47) and textile (47) sectors dominating the capital market (see chart above). The market currently trades at an average P/E of 16. On an average over the past 10 years, there have been 15 new listings on the exchange every year.

In Part 2 of this series, Rahman shares his perspectives on the two key regulations that are expected to be passed by the DSE over the next 6 months.

 

 

The Frontera interview with Majedur Rahman, Managing Director of the Dhaka Stock Exchange was conducted by Abraham Sutherland.

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