In contrast to many ones' views, investment manager Shekh Mohammad Rashedul Hasan believes the capital market of Bangladesh offers a significant opportunity to sustainably create long-term wealth.
"Our Capital market is much more promising than it seems," said Hasan, managing director and chief executive officer (CEO) of a promising new generation asset management firm, UCB Asset Management – a wholly owned subsidiary of the United Commercial Bank
In a recent exclusive interview with The Business Standard, he said, "People mostly talk about stock market's rise and falls, speculative nature, and suspected manipulation, while as professional investment managers we dig deep into the listed firms that have a decades-long track record of creating above-average wealth for their shareholders."
The market may go up, remain flat, or go down in a certain period to impact investors' portfolio value. Leaving that apart, the most important thing for long term wealth creation is finding the right industry and business for investment, he observed.
For example, a decade after the 2010 stock market crash the market continuously eroded investors' capital. But his analyses have found a basket of at least 10 listed businesses that created around 20% annualised return for their shareholders over the decade of the stock market depression.
"As these businesses are run by the best professionals in the industry and, most importantly, governed by a competent board, consistent wealth generation for the shareholders was a natural consequence."
The best alternative to the savers
Historically, Bangladeshi people are not investors. They instead save for some fixed income or own real estate or gold for asset appreciation.
They need better options now as money is cheap and bank deposits are not lucrative anymore, subsidised national savings certificates have already got certain investment limits which is insufficient for wealthy savers. Real estate and gold have no structured market that offers enough liquidity.
Investment in good mutual funds for a long term is the best option for them, believes Rashedul.
"In the long run, identifying great businesses and picking the right stocks is the key," said Rashedul Hasan who served the investment management industry for more than a decade after receiving his bachelor's degree in engineering and MBA in finance – both from top local universities.
"Your assets grew at a 20% annual compound rate over the last decade, I find nothing more amazing in the long run as fixed income alternatives used to offer around less than half the return and are now hovering even lower as interest rates came significantly down since the pandemic began last year.
Past performance does not guarantee future returns, but professional investment managers with their vast knowledge, ample experience, patient and disciplined investment approach can pick the future winners better, for sure.
Rashedul Hasan's team comprises seasoned investment professionals and young finance talents having global credentials like the CFA charter, while everyone within the team is pursuing their global certifications for the investment industry.
"We have a diverse team and all of its members have done exceptionally well in their academic career," he added.
While discussing his team's investment cases, Rashedul Hasan said the top three listed pharmaceutical companies on the Dhaka Stock Exchange have been doubling their annual sales every five years for the last two decades and most amazingly with a 40-50% gross profit margin, one of the highest in the region.
Then, why do such stocks appreciate less than the shares of much poorly earning companies during the market bull run?
This is because, during the bull run, especially when it is mostly driven by liquidity, the market here tends to be dominated by speculation and herd mentality which only cares about immediate gains, instead of long term and sustainable wealth creation, observed Rashedul Hasan.
The scenario would have been otherwise, had professional fund managers managed much more than the meager less than 5% existing funds compared to the total market capitalization, he added.
He, however, is hopeful that the mutual fund industry will flourish much in coming years, especially after the leading commercial banks, like the United Commercial Bank, seriously invest in asset management business, who also are taking over the investment management baton of the banks themselves from traditional bankers.
"Stock market is a game of mispriced assets, neither undeserving price appreciation sustains here for long, nor the depression in good stocks," he stressed the need for analyzing business fundamentals for long-term gains.
Professional fund managers' outperformance over the recent years of market depression also is helping the industry gain the trust of many clients.
Increasing response from potential investors
UCB Asset Management has been working relentlessly to invite savers for better long term return.
An increasing number of savers, falling in a tight corner nowadays, are desperately looking for better alternatives to fixed deposits. But, they do not want to take risks in the stock market.
Alongside the lucrative return performance over its first year in operation, UCB Asset Management has found some advantages as a subsidiary of its mother bank as the bank itself is taking assistance from its professional investment managers to manage its own proprietary fund.
"Also, many institutions that are not investment experts are also talking to us and assigning us to manage their funds – both with fresh funds and their existing stock market portfolios which have come through stresses in different phases of market cycles," he said.
What the investment management industry needs now
The industry needs more investment alternatives such as fixed income investment in treasury securities, various corporate bonds and of course more and more listed companies with sound fundamentals, said Rashedul.
Government-issued treasury bonds, considered as risk free investments globally, are yet to be exchange traded and the market and asset managers badly need to trade treasury bonds as this is the very first step to develop a fixed-income securities market.
The government also must revoke the policies that are hurting the growth of the mutual industry, he said, referring to the taxes imposed on mutual funds.
There is no capital gain tax on individuals when they directly invest in the market. However, when a mutual fund earns capital gains from an investment portfolio and shares the same gain with individual investors in the form of dividends that are subject to tax.
Also cash dividends earned by mutual funds are doubly taxed when the same is given back to unit holders in form of cash dividends.
"Learning it, why would an individual consider investing through mutual funds?" Rashedul Hasan said.
The capital market has progressed a lot over the last two decades in terms of many things, and it has a longer way ahead, observes the asset manager.
Now the bourses have the globally accepted indices, corporate accounting and auditing practices have improved a lot, and very importantly the investment industry is getting an increasing number of talents, regulators are better at addressing problems and the needs for changes, according to Rashedul Hasan.
He is very optimistic about the capital market's future as the economy is growing with its potential for more, while the success stories of some industries and companies are really great and establishing a fixed income securities market has become a priority area to the market regulators.
"If you look at the history of the world's stock markets, despite ups and downs, the net outcome has been upward over decades and even centuries. Why not ours, when the economy is only growing at a wonderful pace?" he said.