Page 72 - IBT August 2021 Issue

IN SEARCH OF
Special Report BANGLADESH’S
HIDDEN GEMS

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

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