Bangladesh, a small country in Southern Asia, lying to the East of India on the Bay of Bengal, is one that has been doing wonders for the past few years. Even 20 years back, this country was nowhere on the map (not literally), but the progress it has made in the past decade and the potential that Bangladesh’s economy possesses today tells a different story. Initially, Bangladesh’s economy was heavily dependent upon agriculture due to its abundance of highly fertile lands, which the nation boasts of even to this day. This is a result of the fact that a large portion of Bangladesh is occupied by rivers, bringing in tons of fertile soil, or as the Bangladeshis prefer to call it, “golden soil”. However, a lot has changed since the days when 71% of Bangladesh’s population consisted of farmers.
A fact that has been brought to the forefront for quite a while is that Bangladesh is deemed as one of the most exciting long-term demographics stories of Asia. More often than not, Bangladesh’s large and stable economy has been compared to that of Vietnam. This has been achieved thanks to massive successes in a number of sectors such as Readymade Garments (RMG), Agriculture, Pharmaceuticals, etc. However, that’s just the tip of the iceberg. How did Bangladesh make such tremendous progress and what were the key factors that contributed to it? Well, while trying to answer these questions, mysteries and exploring the realms of curiosity, researchers at HSBC decided upon preparing an in-depth report on how Bangladesh has run riots to boost its economic and financial prowess, and how the country and its government has catalyzed its economic growth, resource utilization, national income as well as GDP per capita to turn its fate around. Therefore, let us have a brief overview of the interesting and exciting factors underlying Bangladesh’s success and the prospects that this promising economy demonstrates.
A vital reason behind Bangladesh’s uprising can be attributed to its quick learning abilities. Bangladesh has been a fast learner. During 1971, when Bangladesh gained its independence fifty years ago, it was one of the poorest nations in the globe. Fifty years later, today, it now has an income per capita close to that of India, which is one of the leading economies of Asia. Consecutively, pre-pandemic, Bangladesh had been exceeding economic growth by 7% for four years straight, outpacing the likes of India and even China! These statistics have brought up comparisons between Bangladesh and Vietnam. Both economies have been skyrocketing recently and both hold immense potential.
These contrasts and comparisons based on various aspects of the economy, aid investors in making critical investment decisions, especially those who are less aware of the exciting and compelling stories of growth and prosperity of the two nations and their vibrant Asian frontier equity markets. Bangladesh’s growth rates are similar to that of Vietnam. These frontier markets possess a higher trading turnover than Singapore. Yet, and many experts claim Bangladesh to have the upper hand due to its larger population and economy which is growing at a faster rate, regardless of the subpar infrastructure, power lacking, a banking sector that is suffering from soured loans as well as political unrest. Bangladesh also has a strong macro position and a powerful external balance sheet with low external debt and high FX reserve coverage.
Key Points & Data:
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Bangladesh has a market cap of $55.5 billion while Vietnam has a market cap of $200.1 billion
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The Bangladesh and Vietnam markets were similar in size and movement until 2015, but since then Vietnam has experienced four times as much growth as Bangladesh.
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While Vietnam is skewed towards banks and property, Bangladesh appears to be more diversified with no foreign ownership limitations
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Bangladesh is less correlated with global macro and equities in comparison to Vietnam
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Bangladesh has the higher earnings growth of the two but sell-side stock coverage is a drawback
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Bangladesh’s economy is larger and growing at a faster rate than that of Vietnam. However, its capital market still needs some catching up if it is to sustain growth.
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Asset quality in banking sectors still remains a problem for Bangladesh, while conditions have been seen to improve for Vietnam
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Macro indicators are stable for markets of both the countries
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Vietnam’s growth is highly driven by Foreign Direct Investment (FDI), and there is room for opportunities for the rise of FDI from a low base in Bangladesh
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Bangladesh demonstrates stronger long term consumption trends
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Bangladesh’s pharmaceutical industry is growing rapidly
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Overall, Vietnam scores higher than Bangladesh in terms of business and governance indicators as of now
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Bangladesh scores higher in accountability than Vietnam
In the eyes of HSBC, Bangladesh is one of the most thrilling stories of long-term demographics. Fun fact: There are as many Vietnamese and Thai people combined as there are Bangladeshis. With a staggering population of 165 million, Bangladesh stands as the 8th most populated country in the world, with an incredible population density, somehow fitting in masses of people within a country that has such limited space. Bangladesh truly is a wonder and offers a very lucrative market. According to HSBC, with rising incomes and an ever-increasing role played by technology, Bangladesh is on the verge of an Industrial Revolution.
These high levels of growth are primarily supported by smaller households, urbanization, and female employment acting as powerful consumption catalysts. Experts at HSBC believe that Bangladesh is currently receiving less global attention than it deserves, especially with a market cap-to-GDP ratio of merely 14%. Although the market is still illiquid, small in size, and less easily accessible, so was Vietnam around half a decade back. In 2015, Vietnam and Bangladesh had similar markets, but since then Vietnam has grown four times more than Bangladesh. However, it’s not too late yet. HSBC claims that Bangladesh is fully prepared to close the gap. Bangladesh is currently neither as correlated with global macro and equity themes as Vietnam and nor is it receiving attention anywhere close to the ones that Vietnam receives from analysts, facilitating opportunities for fund managers searching for diversification.
As reported by The Daily Star, HSBC has titled the stock market of Bangladesh as a “hidden gem”, which is very good news for current and future fund managers. Even though Bangladesh has a larger rate of growth in earnings, its sell-side remains limited. In a report on the Asia Frontier, the British multinational investment bank has said something like, “Bangladesh at 50: ready to close the gap”. Large firms of Vietnam are occupied by the sell-side, which is currently not the case for Bangladesh, making the country and its equity market fertile ground for fund managers. HSBC’s verdict regarding the local banking sector of Bangladesh is that the non-performing loans (NPLs) level is at an excess of 8 percent, based primarily on garments firms, agriculture, and large industries. According to experts, the vital problem is a below-par credit information system in addition to lengthy and complicated recovery of loans. HSBC displayed concerns regarding this issue and was quoted saying, “The weak asset quality of Bangladeshi banks, especially in the public sector, remains a concern.” However, this problem is not unrepairable, as Vietnamese banks also faced similar problems with NPLs, but their balance sheets are now far better off thanks to robust growth in profitability.
Bangladesh stands on strong fiscal grounds and possesses a robust balance sheet. In addition, it also is one of the economies in the region with the least exposure to portfolio flows which protects its exchange rate against volatility.
Moreover, the British multinational investment bank went as far as predicting that by 2025, Bangladesh’s pharmaceutical market has the potential to exceed $6 billion as the government is relaxing its policies for drug approval. Till now, Bangladesh has been sourcing its raw materials from China and India. However, that is now about to change as the Bangladesh government is taking major steps in setting up an industrial park where pharmaceutical ingredients will be produced. Furthermore, the leading Bangladesh firms have been able to avail US FDA approval, granting them access to high-margin Western markets for healthcare. Bangladesh promises to be a market with immense potential, reporting consistent high economic growth for a decade. HSBC added, “More importantly, the volatility of growth has been below the average. For a country facing such big challenges- infrastructure, power supply, poverty, and floods – Bangladesh’s economy has proved to be very resilient”.
Bangladesh stands on strong fiscal grounds and possesses a robust balance sheet. In addition, it also is one of the economies in the region with the least exposure to portfolio flows which protects its exchange rate against volatility. As the report suggests, on the basis of Worldwide Governance Indicators, Bangladesh scores better in accountability whereas Vietnam has scored higher on the rest of the indicators, while both the countries have been successfully able to make progress in controlling corruption. The report stated, “Bangladesh still lags Vietnam but is making efforts to improve the ease of doing business.”
As of now, Bangladesh appears to be a rising star in the realms of the Asian market. The Bangladeshi equity market and banking sector still have a long way to go. However, there is still a glimmer of hope as Bangladesh resiliently strides forward and promises to showcase robust and steady improvement.
