Market capitalisation in Bangladesh inadequate for expected growth

Although the difference between the economic growth of Bangladesh and other big Asian economies is low, the difference in performance between our stock market and theirs is quite high.

This does not bode well for Bangladesh's economic output in the long run, as stock markets in some of the largest Asian economies, including Japan, China and Singapore, have been contributing for decades to their robust growth.

In Bangladesh, however, the scenario is the exact opposite. Low stock market capitalisation-to-GDP ratio suggests poor contribution to the country's economic growth.

The ratio, measured as a percentage of the gross domestic product (GDP), helps evaluate the size of the stock market relative to the size of the economy.

Since economic growth is associated with capital formation and also has positive effects on market capitalisation, a high rate of capital formation usually results in rapid growth in production and income. 

Among 23 Asian countries, Bangladesh's market capitalisation-to-GDP ratio is the 18th largest, standing at 28.24% in 2018, according to World Bank data.

Hong Kong topped the index among Asian nations with 1052.12% market capitalisation-to-GDP ratio, followed by Singapore and Malaysia. Neighbouring India stood at the ninth position with 76.42%.    

Bangladesh also ended up in 41st place among 62 markets worldwide as of 2018.

Hong Kong and South Africa secured the first and second positions, respectively, on the index, while the US came in fifth. India ranked at the 16th position.

Ups and downs in Bangladesh's stock market World Bank data shows that Bangladesh's market capitalisation has gone through many ups and downs over the years.

In 1996, Bangladesh's stock market crashed, leading to a highly turbulent and volatile period in the country's trading history. 

Market capitalisation was 15.9% in 1996, which then plummeted to 5.74% in 1997, and 4.06% a year later.   

The second biggest crash occurred almost a decade ago in 2011. Before that, the market was vibrant and booming. 

In 2017, stock market capitalisation as percent of GDP stood at 34.51%, but then dipped to 28.24% the next year, causing Bangladesh to fall far behind India, Malaysia and Vietnam.