Postcard from Bangladesh
Matthews Asia
By Taizo Ishida
December 17, 2010
Postcard from Bangladesh
I recently returned to Dhaka, Bangladesh for the first time since I worked there with the United Nations Development Programme more than 20 years ago. To be honest, I never imagined returning to one of Asia’s poorest countries to scour for investments as a portfolio manager. Then again, there was a time not long ago (prior to 2000) during which many investors paid scant attention to China and particularly India.
Dhaka today has still not caught up to the likes of the bustling Indian city of Mumbai. But it does seem similar to the Mumbai of a decade ago—though with passenger cars now more ubiquitous than rickshaws, and cell phones a necessity rather than a luxury. (In fact, much to my surprise, everyone I met with seemed to have an Apple iPhone!)
My trip to Bangladesh this time was designed to explore two questions. First, why has there been virtually no foreign investor participation in the Dhaka Stock Exchange (even though the exchange was established in 1954)? Second: what kind of companies and quality of management are available in Bangladesh?
Following several meetings with corporate managers, I came away ultimately impressed with the quality of management. While this quality would typically attract foreign investment, the poor dissemination of corporate financial data by the Dhaka Stock Exchange to Western data providers is discouraging.
Bangladesh’s market has actually been doing quite well, with the DSE General Index nearly tripling over the last 15 months. It hit an all-time high during my visit in early December. While it seems to be doing well even without the support of foreign investors, improvements to its data sharing process would greatly enhance the long-term interest of foreign investors.
The country’s economy has been expanding by more than 6% a year over the last several years, even in 2008 when the global economy suffered. Many Bangladeshi companies, particularly in the local garment industry, are also now well-positioned for growth. They are major beneficiaries of the rising cost of labor in China. Just as shoe manufacturing shifted over a decade ago from South Korea to China, such manufacturers are moving from China to lower-cost countries such as Bangladesh.
While some foreign investors may consider Bangladesh a “frontier” market, its market capitalization already surpasses that of Pakistan, Vietnam, Sri Lanka and New Zealand. I believe there is a good chance that this market will be a more integrated part of the Asian investment landscape soon.
(c) Matthews Asia
