An overview of the Bangladesh capital markets by Sajid Amit

 

The term "Bangladesh capital markets" is used to describe the stock exchanges, bond markets, and other financial establishments that make it possible to purchase and trade financial products in the nation. Bangladesh's two primary stock markets are the Chittagong Stock Exchange (CSE) and the Dhaka Stock Exchange (DSE).

Over the last 12 years, the Bangladesh economy has sustained an average GDP (gross domestic product) growth of around 6.0 per cent per year, accompanied by significant shifts in the sectoral outputs, away from agriculture to industry and services, towards an increasing contribution of the private sector to growth in investment. The impressive expansion of Bangladesh's financial industry has been one of the forces behind the private sector's input to investment.

Key players and instruments in the Bangladesh

There are numerous significant participants and financial tools on the stock markets in Bangladesh. We will delve deeper into each of these in this essay.

Key players

1.    Dhaka Stock Exchange (DSE):

The primary stock market in Bangladesh is the Dhaka Stock market (DSE). More than 700 companies are presently registered there as of its establishment in 1954. The DSE is a key player in the nation's capital markets, giving businesses a venue to collect money by issuing shares and giving investors a place to exchange those shares.

2.    Bangladesh Securities and Exchange Commission (BSEC):

The governing body in charge of policing the financial markets in Bangladesh is the Bangladesh Securities and Exchange Commission (BSEC). It is the responsibility of the BSEC to keep the financial markets transparent and investor-safe. All actions involving the issuing and dealing of assets are governed and overseen by it.

3.    Bangladesh Bank:

The governing bank of Bangladesh is called the Bangladesh Bank. By controlling the government bond market, it plays a significant part in the nation's financial markets. On behalf of the government, it distributes treasury bonds and bills, which are heavily exchanged in the secondary market.

4.    Investment Banks:

The capital markets in Bangladesh also depend on investment institutions as a key participant. In addition to underwriting stocks, handling initial public offerings (IPOs), and assisting customers with capital market deals, they offer a variety of services.

Financial instruments

1.    Stocks:

The most frequently exchanged financial products on Bangladesh's capital exchanges are stocks, or equities. To collect money from buyers, companies issue shares of stock. On the stock exchange, investors purchase and trade these shares, and the price of the shares changes according to market demand.

2.    Bonds:

In order to collect money, governments or businesses issue bonds, which are debt instruments. Over the course of the bond's existence, set interest payments are made to bondholders, and they also receive the capital sum when the bond matures. Since the government issues the majority of the bonds in Bangladesh, the country's bond market is comparatively tiny.

3.    Mutual funds:

In Bangladesh's financial markets, mutual funds are a common form of financing. These funds combine the money of numerous investors to engage in a diverse array of stocks, bonds, and other assets. Investors have access to mutual funds as a lower-risk, more diversified means of investing in the stock market.

4.    Derivatives:

Financial assets known as derivatives draw their worth from a base object, such as a stock, bond, or commodity. On the stock market, derivatives are exchanged and used for arbitrage, speculation, and hedging.

In a nutshell the Bangladesh capital markets are made up of a number of important individuals and financial tools, each of which is essential to the markets' smooth operation. Anyone seeking to engage in the capital markets of Bangladesh must have a thorough understanding of these participants and instruments.

Sajid Amit’s view on capital market

Sajid Amit focused on Bangladesh’s capital market. Sajid Amit said bubbles can typically be identified by a weak connection between stock prices and a company's core assets. But because Bangladesh's capital markets were still in their infancy in 1996 and because investor knowledge was extremely low, investors turned heavily to margin lending, which was supported by a rapid increase in both money supply and credit.

An increase in bank money flowing into the markets was what created the liquidity in the stock markets. Banks with sister concern merchant banks and brokerage wings invested in the market either through margin loans through their merchant bank and brokerage concerns, direct portfolio investment, or indirectly, as several debt products from banks, including credit card loans, were routed by bank customers into the market.

In Sajid Amit’s opinion, the rising BO accounts served as a prescient sign of the market boom. From 1.79 million at the end of December 2009 to 1.90 million in January 2010, the number of BO accounts listed with the CDBL has grown. Since there were 2.5 million BO accounts as of June 2010, this means that throughout FY 2010, roughly 126 000 new private buyers entered the market each month.

Challenges in the Bangladesh capital markets

Despite the substantial valuation, growth and development that the financial markets in Bangladesh have experienced over time, there are still issues that need to be resolved.

The challenges the capital market will face are-

1. Lack of liquidity

Low liquidity on the Bangladeshi capital markets makes it challenging for buyers to purchase and trade securities quickly. For buyers, the low transaction activity in the stock and bond markets presents a major problem.

2. Limited investment opportunities:

The majority of the listed businesses on the Bangladeshi capital markets are tiny and mid-sized, which limits the funding possibilities. The development of the capital markets is hampered by the absence of a variety of investment choices.

3. Lack of investor awareness:

Investor knowledge and instruction about Bangladesh's financial markets are lacking. The advantages of investing in the stock and bond markets as well as the dangers associated are not widely known to prospective buyers.

4. Governance issues:

Insider dealing, market manipulation, and financial theft are just a few examples of the governance problems that plague the capital markets in Bangladesh. These problems limit the markets' ability to expand and evolve and erode investor confidence in them.

The Bangladesh capital markets have improved steadily over the years and have gone a long way since their start in the early 1990s. Despite the difficulties that still need to be overcome, such as low liquidity and insufficient diversity, the regulatory climate is favourable and the government is actively attempting to resolve these problems. We can anticipate further development and extension in the financial markets of Bangladesh as the nation continues to modernize and develop.

This article is originally published on Magzinenow.