Bangladesh stocks hold hidden gems: HSBC

HSBC has drawn attention of international fund managers looking to diversify their portfolios towards Bangladesh stocks, reports CNBC.

There could be "hidden gems" among the publicly listed companies here, suggests the multinational bank in its report this month to emphasise the potential stock picking opportunity at the bourses of Dhaka and Chattogram.

HSBC said the Bangladesh stock market is now in a shape where Vietnam was five years ago and the Southeast Asian frontier market is already favourite among international investors.

The bank believes Bangladesh stock market is well placed to start closing its gap with Vietnam.

The Bangladesh stock market is less correlated with global macro and equity themes than Vietnam and also receives far less attention from analysts, HSBC analysts said in their report, adding that the fact created opportunities for fund managers looking for diversification and "hidden gems."

"The market is illiquid, but that's where the opportunity is," said HSBC's ASEAN and frontier markets equity strategist Devendra Joshi at a CNBC programme on Tuesday.

Joshi, one of the co-authors of the HSBC report, highlighted Bangladesh's economic positives there and discussed the stock market opportunities.

The Bangladesh stock market has more than 300 listed companies, and only 7 stocks have a market capitalisation of more than $1 billion.

DSEX, the broad-based index at the Dhaka Stock Exchange (DSE) has long been dominated by financial stocks but the weightage of consumer and health-care companies is increasing, said Joshi.

Bangladesh is one of the fastest-growing economies in the world, even after the pandemic.

Joshi explained that the Bangladeshi economy is larger than Vietnam and also growing at a faster pace than the Southeast Asian nation.

"They will need more and more investment in the capital markets if they are to sustain the growth," he said.

With a population of some 163 million people, the country's GDP per capita is inching closer to $2,000. That is set to bring about a shift toward discretionary sectors such as those related to non-essential consumer goods and services, which tend to increase as disposable incomes rise, writes CNBC siting HSBC report.

Though Bangladesh's garments exports and inward remittances have been key drivers of its economy over the last 30 to 40 years, that mix is changing, according to Joshi. "The next leg of growth is going to come from domestic consumption, the domestic engine of the economy," Joshi predicted.

In the report, HSBC also noted that Bangladesh is showing signs of diversifying away from garments by setting up infrastructure to allow companies such as South Korean tech giant Samsung and Japanese automaker Honda to build production facilities.

Meanwhile, domestic pharmaceutical companies and some home-grown consumer brands have started exporting to overseas markets, which drew HSBC analysts' attention.

Bangladeshi taka has been relatively stable, Joshi said, adding that one reason for the stability is that there aren't as many portfolio investors in the market, which shelters the taka from volatility.

"From the external position also, the country's balance sheet sounds strong, the external debt to GDP is quite low — so the currency has been quite stable," he added.

HSBC also noted that an active and deep two-way market in the dollar-taka trade has yet to develop.

Generally, there has been a low appetite for Bangladesh stocks among foreign investors over the last few years despite the fact that the economy is on a strong fundamental base, some listed companies are doing well in business, said fund manager Shahidul Islam, CEO of local asset manager VIPB AMC Ltd.

To make the market attractive to international fund managers Bangladesh needs to assure them of market mechanisms in stock pricing, interest rates and also exchange rate, added Islam, former president of CFA society Bangladesh.

"Definitely, there are some good listed companies which have given tremendous returns over the years and still looks good," said Asif Khan, CFA, a partner of Edge Research and Consultancy.

He feels the investable stocks and Bangladesh as an investment destination needs marketing among the international investors. "Compared to peer nations, we have not promoted ourselves enough." 

The Bangladesh Securities and Exchange Commission is leading an ongoing initiative to present the Bangladesh economy and its capital market internationally through road shows across the world.