Covid-19 reinforces reforms in capital market

Like everything else, the novel coronavirus pandemic has affected the capital market of Bangladesh too, though the main problems of the extremely underdeveloped market are age-old, experts said on Saturday.

Covid-19 is merely reinforcing the calls for capital market reforms, they stated at a webinar arranged by the Chittagong Stock Exchange (CSE), some top business associations, and a think tank.

Resurgent Dialogue-4, part of a series discussion aimed at addressing plausible ways to economic recovery, was titled "Private Investment in Uncertain Times: Capital Market and Covid-19 – Charting Impact and Path to Recovery."

Dr Masrur Reaz, chairman of think tank Policy Exchange Bangladesh, said in his concluding remarks that Bangladesh is a top country in South Asia in terms of the national savings rate – the nation saves around 30 percent of its income.

But an underdeveloped financial system and inadequate market infrastructure hinders channeling these savings towards investment.

"Only 25 percent of the total investments come through the banking system and the capital market together, which should not be less than 50 percent globally," he told The Business Standard. 

In a telephonic interview after the event, the economist said that for post-pandemic economic recovery and high economic growth, Bangladesh will need a lot more investment – both local and foreign.

Without quicker reforms and new products and services, the capital market will not deliver, he added.

The stock market had over a hundred companies listed in 1993 and after 27 years, it now only hosts 321 companies.

"The market did not follow the growth path of the economy," said Barrister Nihad Kabir, president of the Metropolitan Chamber of Commerce and Industry, Dhaka and a legal advisor to the Bangladesh Securities and Exchange Commission (BSEC) during its formation in the early '90s.

The discussants – listed company representatives, capital market professionals, bankers, and stock exchange officials – pointed out a large number of issues that discourage good companies from entering the capital market, alongside stressing the urgent need for product diversification.

MCCI former president Syed Nasim Manzur, also a promoter of some listed companies, said the lack of benefits against costs deter companies from being listed.

CSE Managing Director Mamun-Ur-Rashid in his keynote presentation said the market capitalisation of the Bangladeshi stock market is below 12 percent of GDP – the lowest in the region and way lower than peer countries, except Sri Lanka and Pakistan, who have the ratio at somewhere above 17. 

He presented the port bourse's planned timeline by which the capital market will get new products and services to facilitate more investment.

Discussants also stressed good corporate governance, structural reforms, and system improvements for the anaemic market to contribute to economic growth after absorbing the pandemic shocks.

BSEC Chairman Professor Shibly Rubayat-Ul-Islam expressed his determination to address the existing issues soon.

DSEX, the broad-based benchmark at the Dhaka Stock Exchange, has been in a downturn since 2010 with some interim minor market rallies and a 12-month-long sharp decline until March this year, weakening the market participants.

Policymakers are trying to engage institutional investors in an unprecedented manner to help boost the market, which the observers believe must be accompanied with long pending reforms.

In the coming days, state level foreign financing is likely to face a decline as major developed economies are spending too much for their own economic recovery. But market-based lending would be a low-hanging fruit from the developed world, believes Dr Reaz.

"To utilise the opportunity immediately, development of our own market is very important right now," he added.