Market likely to rebound in 2026 with clouds clearing over politics, economy

Bangladesh's capital market is expected to see a year of resurgence in 2026 from its current rock-bottom level, aided by political stability and macroeconomic recovery following the parliamentary election scheduled for February 12.

The year 2025 proved challenging for the country's capital market, shaped by a steady stream of policy shifts amid evolving political and macroeconomic realities.

"We expect Bangladesh to turn the corner in 2026 after a few difficult years, both economically and politically," said Asia Frontier Capital (AFC), a global fund manager, in a recent report.

Hong Kong-based AFC expressed optimism, noting that improved political stability and policymaking following the parliamentary elections could become major drivers of economic growth and overall investor sentiment.

"On the macroeconomic front, lower inflation in 2026 should lead to benchmark interest rates declining, which will be very positive for the country's stock market sentiment," reads the AFC outlook.

Echoing AFC's view, local market analyst EBL Securities said the market could turn around, driven by optimism centred on political clarity and favourable macroeconomic conditions.

Liquidity conditions are expected to improve as the central bank is likely to ease monetary policy by reducing interest rates.

"That should accelerate private-sector credit growth, reinvigorate subdued capital investment, improve company profitability, and restore overall business confidence," said EBL Securities.

Private-sector credit growth has hit a historic low of 6.23 per cent. Meanwhile, the central bank has kept the policy rate unchanged at 10 per cent, while lending rates have risen to between 15 per cent and 16 per cent.

"Aligning with the easing of monetary policy, the elected government is expected to adopt favourable fiscal policy to drive economic growth momentum," reads the EBL analysis.

Moreover, as political clarity emerges alongside regulatory policy certainty, the capital market, given its current attractive valuation levels, is expected to draw fresh investment and gain positive momentum, according to EBL Securities.

"Bangladeshi stocks are trading at attractive price levels, with blue-chip companies, including much-preferred multinational stocks, at a large discount to their historical averages."

The country's capital market also stands at an attractive valuation compared with regional peers, offering a compelling entry point for investors. Overall, the market's price-to-earnings (P/E) ratio stood at a historical low of 8.6 at the end of 2025.

Salim Afzal Shawon, head of research at BRAC EPL Stock Brokerage, said recently that the market's overall performance in the outgoing year fell short of expectations due to political uncertainties and regulatory reforms.

Following the political changeover, the interim government implemented several reform measures across the economy, including in the capital market, to restore investor confidence.

The Bangladesh Securities and Exchange Commission (BSEC) introduced new margin rules to tighten lending and strengthen market discipline and approved revised mutual fund rules, paving the way for the gradual phase-out of closed-end mutual funds. The revised public issue rules are now at the final stage.

Although Shawon expressed optimism about 2026, he said macroeconomic recovery and political stability alone would not be sufficient to trigger a sustained market rebound.

"While inflation, interest rates, political change and other positives would help in 2026, new issues and a more accommodating market structure would be needed to boost both the market and the economy," he said.

"We have a weak banking sector, and there will be pent-up demand for funding from businesses that the capital market can accommodate given the right infrastructure," he added.

After a year without any new listings, the market may see fresh initial public offerings in 2026, as the securities regulator is close to finalising the revised public issue rules.

Md Abul Kalam, spokesperson of the BSEC, said companies with strong track records would be encouraged to go public once the revised rules are approved.

"The revised IPO rules are expected to encourage high-quality companies, as the rules emphasise transparent valuation methods that ensure greater protection for investors while making the listing process smoother for issuers," he said.

He also said discussions were ongoing with relevant ministries and authorities regarding the offloading of government shares in state-owned and multinational companies operating in Bangladesh.

Issuers will receive fair pricing, as the revised IPO rules form part of a broader effort to modernise the listing framework and strengthen regulatory oversight.

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