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Bangladesh's capital market grew by one-fifth as much as its peer Vietnam's capital market between January 2014 and July 2024 mostly because of faulty market mechanisms and lack of product diversification.
Bangladesh performs equally poorly when compared to other emerging markets, such as India, Pakistan, and Sri Lanka.
In January 2014, the main index of the Dhaka Stock Exchange (DSE) was 4,056, which rose to 5,280 about a decade later, a mere 30 per cent expansion. On the other hand, Vietnam capital market's index jumped nearly 134 per cent to 1,207 during the same period.
Despite the gap between the markets' performance, Bangladesh's GDP size was Tk 438 billion in 2023 while Vietnam's Tk 434 billion.
Vietnam's secondary market developed because of an increase in the number of securities, and improvement in organisational operations, market capitalisation, and liquidity. In 2000, the market had only 4 securities listed on H? Chí Minh Stock Exchange, which soared to nearly 1,200 traded securities, including 750 stocks, bonds, derivatives, ETFs, and covered warrants.
Compared to Vietnam, Bangladesh's stock exchanges' have remained almost static. Bangladesh's market expanded from only 234 stocks and a handful of other instruments in 2000 to 360 stocks, 37 mutual funds, 236 Treasury bonds, and 16 corporate bonds by 2024.
Moreover, more than 30 per cent of the IPOs, which had been listed during the decade, turned out to be bad performers after listing.
The past two securities commissions failed to strengthen the market. Instead, they were fixated on keeping the index stable artificially by imposing restrictions on stock price movement.
Amid the shortage of good stocks, price manipulation was rife in the market. A few fraudsters made profits by luring general investors into chasing rallies of small-cap stocks and then offloaded overpriced shares to them.
Though the mutual fund industry grew over time, it earned a bad reputation for the unexpected intervention by the regulatory body; liquidation of the units of many MFs was barred by extending the maturity period.
There are no derivatives, ETFs or covered warrants in the Bangladesh market.
The market currently has only equity securities, very few corporate bonds, and a large number of government securities but they are not traded in the secondary market.
There is also a separate board for the SME sector but again the number of securities is limited. Another board for alternative securities has only a few instruments.
There was a promise of a commodity exchange being launched but the possibility is nowhere visible on the horizon now.
Meanwhile, unscrupulous brokers defrauded investors by siphoning off money from their consolidated customers' accounts, but the market watchdog could do little to punish them and compensate the victims.
Experts emphasize the need for regulatory reforms to discipline the market stakeholders and ensure investors' protection.
Against this backdrop, Bangladesh market is far behind in the Buffet indicator. Buffet index is the ratio of the total stock market value divided by GDP. The Buffett Indicator shows the value of the stock market relative to the size of the economy.
Vietnam has a market-to-GDP ratio of 60 per cent, while the figure is only 7.2 per cent for Bangladesh excluding Treasury bonds.
That shows Bangladesh's market does not have representation of the sectors that contributed to the growth of the economy, as opposed to the case of Vietnam.
During the time under review, other markets also flourished remarkably.
Turkey's stock index escalated nearly 1,300 per cent between January 2014 and July 2024. Turkey's market value is equivalent to 40 per cent of its GDP.
In the same period, Sri Lanka, Pakistan or India's index grew 100 per cent, 216 per cent, and 300 per cent.
In the meantime, the interim government of Bangladesh has taken a few initiatives to bring changes to the market.
A five-member task force has been formed by the Bangladesh Securities and Exchange Commission (BSEC) to recommend reforms, aimed at developing the stock market, boosting investors' confidence, and ensuring governance.
The BSEC has outlined 17 specific areas for the taskforce to focus on. However, the regulator reserves the right to expand the scope of the task force's work through discussions with its members if any additional issues are deemed important.