- We expect the continuation of positive stock market momentum in 2021 which started from July 2020
- Economic activities recovery, low-interest rate regime, strong BDT & restored investor confidence are the key drivers
- We recommend buy for 11 stocks from Consumer, Pharma, Telco, MFS and industrials
Bangladesh to return to its high growth trajectory
Before the pandemic hit the country, Bangladesh's economy maintained a steady 6%+ growth rate during FY10-FY15 and 7.0%+ growth rate during FY16-FY18, and 8.15% in FY19. However, the COVID-19 pandemic severely impacted nationwide mobility since March and slowed the GDP growth rate to 5.24%. The government is aiming at 8.2% GDP growth suggesting a V-shaped recovery path of the economy in FY21. Much like the government’s target, ADB’s projection shows 6.8% growth for Bangladesh’s economy for FY21. The economic activities in both rural and urban areas have reached the pre-pandemic level. We have also seen a recovery in export (0.9% YoY growth in 5m FY 21) and astounding growth in remittances (41.1% YoY growth in 5m FY 21). However, the import (-13.0% YoY in 4m FY 21) is yet to reach the Pre-Covid level. While the domestic economic activities are running near the pre-pandemic level, the government has already inked deals to procure 30 million doses of the vaccine developed by AstraZeneca. Overall, we expect the economy to return to near its pre-pandemic growth trajectory in 2021.
Money market liquidity to continue
Bangladesh Bank (BB), the central bank of Bangladesh, implemented a 9% rate cap from 1st April 2020. After the pandemic hit the country, BB came up with different policy relaxations such as – policy rates cut, CRR reduction, special 364-day repo introduction, loans classification relaxation to increase the money market liquidity. Besides, higher remittance inflow along with subdued imports made Bangladesh Bank buy USD from local banks thus increased BDT liquidity. As a result, excess liquidity of the country’s banking system increased to an all-time high of BDT1.7tn. We expect the low-interest rate regime to continue till September 2021 at least because of this higher money market liquidity.
Forex reserve reached historical high; No pressure for BDT depreciation
Bangladesh’s foreign exchange reserve reached USD 43bn landmark in December, 2020 registering more than 32% growth YoY. This amount is sufficient for the country to settle import payments for 10 months. Such growth in foreign exchange reserve is attributable to the surprisingly high inbound remittance growth since the very start of the fiscal year 2020-21 and lower import payments amid the pandemic. The central bank is now purchasing greenbacks from the commercial banks to prevent appreciation of the local currency. If we put this in number, the central bank bought around USD 3.6bn greenbacks in only four months of the current fiscal year (Jul-Oct 2020) while it bought only USD 877mn in FY20 (full year). Our external debt is only USD 48.7bn (14.8% of GDP) with no immediate repayment covenant. Most of the loans are highly long-term in nature. Since there is no imminent scenario calling for unusual high dollar payments for debt repayments or imports, we do not see any impending pressure for BDT depreciation as well.
New BSEC leadership restores investor confidence
The newly formed commission of BSEC is taking pro-market and pro-investor stances to bring back the public confidence of the capital market. The commission is stringent in enforcing regulatory compliance on listed companies. The new commission is also aiming to increase the Depth of Market (DOM). Under the current commission, we saw the listing of large-cap companies such as Robi Axiata (2nd largest telecom in Bangladesh) and Mir Akhter Hossain Ltd (one of the leading construction companies). Besides, BSEC’s better coordination with the central bank and finance ministry helping in the recovery of market participant’s confidence.
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