Investors are found to be cautious about many economic and market factors in 2022, but their optimism did not let off, revealed the Bangladesh Capital Market Sentiment Survey 2022 by LankaBangla Securities, the top brokerage firm in the country.
The majority of respondents anticipate the Dhaka Stock Exchange’s broad-based benchmark DSEX will close above the 7,000 mark at the end of this year.
They came up with the anticipation despite their perception of increased risks of less money flow on the country’s bourses, further policy interventions by different regulators, weakened investor confidence, the weak regulatory framework, and risk of poor corporate earnings growth.
Only a minority of 10.3% of respondents are bearish about the stock market.
The bulls are counting on stable economic growth amid the ongoing low-interest-rate policies of the government and the Bangladesh Bank, while many believe effective new regulations, improved corporate earnings, and some good initial public offerings (IPO) can be strong catalysts for the market.
A hundred individuals from the investment industry and academia participated in the detailed sentiment survey which the LankaBangla Securities research team conducted for the tenth consecutive year.
No fear of a weak GDP, but inflation risk looms
The responses that came over the first five weeks of the New Year reveal the majority have no fear of a weak GDP in 2022.
But 83% said inflation would increase, and a large number of them are concerned that the global commodity market hike and the local inflation is the biggest risk for the Bangladesh Economy in 2022.
A majority 39% believe money market liquidity will deteriorate and the private sector borrowing will be more costly this year.
Most anticipate that taka would depreciate this year against only 12.2% of respondents hoping that taka would be stronger against the peer currencies.
Not surprising that a majority said crude oil price would hurt the economy, electricity price is not competitive enough, the foreign direct investment would rise, foreign currency reserves of the country would remain robust, food safety needs improvement, and diversification would be the best means to boost exports and also the remittance income.
They mentioned the need for more supportive central bank policies, more stimulus, and trade treaties for the sake of generating momentum in the economy.
The government stimulus since the first wave of the Covid-19 helped the economy effectively combat the pandemic impacts and the rising digitalisation will have a positive impact on the economy, the majority said.
Single-digit interest helped private sector investment, deduction in interest in the subsidised national savings certificates was a good initiative, and the central bank is not going to withdraw its cap on interest rates this year, they opined.
The capital market
In 2021, the capital market performed well, mostly because of the still prevailing lack of alternative investment opportunities, the change in the Bangladesh Securities and Exchange Commission, increased investor confidence in the capital market, better regulatory reforms and very importantly, the excess liquidity.
For 2022, decreased liquidity flow, different regulators’ frequent policy interventions, lack of investors’ confidence, and poor earnings growth are the biggest risks, respondents said, while some respondents still fear slow GDP and the weak regulatory framework and increased foreign investors’ sell-off.
On the flipside, stable economic growth, persisting low-interest rate, effective new regulations, better corporate earnings, good IPOs, increased market transparency, high consumer spending, trading of treasury bonds, new brokerage licence all would be positively impacting the capital market in 2022.
The good news is the bearish outlook for the market is limited within a minority of respondents.
Only 20% defined themselves as short-term investors, while a majority 47% said they are mid-term stock investors and 20% prefer long-term stock investment.
54.7% of respondents are ambitious about the pharmaceuticals sector in 2022 as they believe the sector would outperform the market averages DSEX, CSCX.
25.3% said they believe the textile and fuel-power sectors would outperform the indices.
Pharmaceuticals, IT, bank, engineering, textile, services and real estate, food are the most sought after sectors in the primary market which means investors want IPOs from these sectors, while no respondent urged for cement, ceramic, tannery and paper sector companies to go public, perhaps because of the industry and market performance.
Two-thirds anticipate the average daily market turnover to be above Tk1,000 crore.
Despite many good reasons, foreign investors’ capital market participation is low mostly due to their fear and trust issues, the prevailing lack of corporate governance in majority listed firms, pandemic implications, high transaction costs, currency depreciation risks, and the lack of confidence in regulators.
40% said the Bangladesh capital market is still too immature to absorb derivatives, while 21% said the opposite and 39% said derivatives should be there in the next 1-3 years.
The majority still believe equities will be the outperforming asset class while the minority groups mentioned savings certificates, gold, real estate and bonds should be the winners this year.
Poor integrity level in the market
The majority think the integrity level in the Bangladesh financial markets is average and that will remain the same in 2022.
52% said market fraud and manipulation are the most critical issues in the capital market.
Improved enforcement of existing laws, transparent reporting and disclosures, improved corporate governance practices, improved market trading rules would help more integrity in the market, they suggested.
Less than 6% said corporate governance is above average in the local firms.
The tendency to depend on brokers for investment advice amid a lack of advisory licences is a reason behind high market volatility here in Bangladesh, said the majority of respondents. Equity research publications with financial projections with regulatory supervisions would improve investment decision making in the market, they agreed.
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