Bangladesh's index return lowest in Asia for not taking right policy at right time

The key index of Bangladesh's stock market secured a 0.64 per cent gain in 2023, the lowest among its peers, for policies not in sync with reform measures taken globally to overcome impacts of the Russia-Ukraine war.
The failure to recover from war-induced shocks is palpable when compared to the benchmark indexes of Pakistan and Sri Lanka, the economies that began to experience forex reserve crunch and high inflation, albeit on a greater scale, around the same time when Bangladesh did.
The peers, particularly Sri Lanka and Pakistan, recovered, riding on proper and timely policy support, said Md. Ashequr Rahman, managing director of Midway Securities.
Pakistan's KSE All Share Index posted the highest gain of nearly 52 per cent in 2023 among Asian markets and has continued to soar. All the gains were achieved in the second half of 2023 when the IMF approved a short-term loan support to Pakistan, turning the market the best performer globally in the latter half of the year.
Sri Lankan's stock market ended 2023 on a positive note with its CSE All Share Price Index rising 7.11 per cent to 10,637, recovering from a 43 per cent plunge to 7,055 points in the six months to July 2022 on the back of a historic economic turmoil.
In early 2022, Sri Lanka endured power cuts and shortages of essential commodities. Political tension coupled with inflation reaching 50 per cent took a heavy toll on the stock market.
The 2023 best-performing peer markets had seen imposition of high interest rates, aligned with the interest rate hikes by the US, to curb inflation. By the second half of the year, the central banks began interest rate cuts as inflation eased, leading to investor exuberance in the stock market.
But Bangladesh maintained a 9 per cent interest rate cap until June that year. The maximum lending rate has been moving up based on the six-month moving average rate of Treasury bills for the last six months, as the central bank considered tightening monetary policy to tame inflation.
Compared to global counterparts and regional frontier market peers, Bangladesh joined late in the game of rising policy rates and aligning core macro variables (i.e. exchange rate, interest rate) with the market, said Salim Afzal Shawon, head of research at BRAC EPL Stock Brokerage.
"Hence, we expect higher interest rates to continue for at least some period and then a possible reversal later. The higher rates are likely to result in a more attractive fixed-income market for local investors, and can be lucrative for international investors from low interest rate regimes (provided our currency becomes stable)," he added.
A merchant banker, requesting not to be named, blamed the floor price as well as the ineffective monetary policy for the bearish trend in the market.
India, Sri Lanka, and Pakistan hiked interest rates on time to tackle raging inflation. Besides, they did not keep exchange rates elevated artificially.
Bangladesh has not raised the rate as aggressively as it should have. Also, the exchange rate is not market-based.
As a result, Bangladesh's economy is still struggling to absorb the shocks rendered by the Russia-Ukraine war; Inflation has stayed at over 9 per cent and the forex reserves dropped to a record level.
India's S&P BSE 500 Index, which represents nearly 93 per cent of the total market capitalisation of the Bombay Stock Exchange, posted a 24.54 per cent return by the year end.
Several fund managers told the FE that favourable interest rate environments beginning in the latter half of 2023, significantly discounted valuations, and a greater macroeconomic stability boosted overall returns in the peer markets.
On the other hand, the lowest stock prices set in July 2022 in Bangladesh to avert free fall of the index made the market suffer in the end, by not letting it flourish even when earnings rebounded and companies provided record dividends out of profits gained.
The regulator's fear that the market would collapse without the price-fixing mechanism led to a dysfunctional market with erosion of investors' confidence.
The deterioration of macroeconomic indicators fuelled by higher inflation, dwindling foreign exchange reserves, the sharp depreciation of the local currency, and political uncertainty worsened the market situation.
Many investors have left the market whenever opportunities arose, while others have become inactive without any scope of liquidating assets.
"If there were no floor price, the stock market would have been into a recovery phase already," said Md Moniruzzaman, managing director of Prime Bank Securities.
Though the interest rate has been rising in Bangladesh since July last year, many listed companies have rebounded, gaining a good profit in the latest quarters.
In 2024, a monetary ease is expected by global central banks.
"This will help equity flow to frontier markets, and Bangladesh can expect a better investment flow if existing market bottlenecks are removed (for example floor price), and more so if large-cap good quality companies increase in the market via IPOs," said Mr Shawon.
"We expect to see earnings stability and growth in certain segments, owing to ongoing industry consolidations across sectors in a tighter environment, financial strengths benefitting in a rate rising environment, and some expected tailwinds to select industries as policies shift and changes take place."

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