INVESTORS URGED TO CAPITALISE ON BANGLADESH’S LOW P/E RATIO AND STRONG LONG-TERM ECONOMIC GROWTH PROSPECTS
- Top blue-chip Bangladesh stocks are trading at close to their all-time low PE Ratio levels, which indicates potential undervaluation
- Bangladesh is “The next Asian tiger”, analysts say
Dhaka based Green Delta Dragon, a joint-venture asset manager founded by Green Delta Insurance Company Ltd (“GDIC”), Dragon Capital Group (“Dragon Capital”) and Equinox Dhaka Ltd. (“Equinox”), says a combination of very low price-to-earnings ratios (P/E ratios) and a strong economic forecast, makes Bangladesh one of the most attractive markets in the world for long-term investors.
The fund manager’s analysis reveals the P/E Ratio of the Bangladesh Dhaka Stock Exchange Broad Index DSEX:IND is around 14.5, compared to 21.1 and 23.7 for the main stock markets of Thailand and India respectively. Green Delta Dragon says that top blue-chip Bangladesh stocks are trading at close to their all-time low PE Ratio levels, which indicates potential undervaluation.
Earlier this year, Green Delta Dragon, launched its first open-ended mutual fund – the Green Delta Dragon Enhanced Blue Chip Growth Fund (“GDD EBCGF”). The fund’s objective is to outperform the benchmark DS30, which tracks the leading stocks listed on the Dhaka Stock Exchange by focusing on select investments in market leading Bangladesh-based companies, targeting capitalisations of Bangladeshi Taka 8.5 bn (US$ 79mn) or more, and in IPO investments of potential future market leaders.
Shahbaj Talat, Managing Director & CEO of Green Delta Dragon said: “Bangladesh not only has very attractive P/E Ratios, it also has promising long-term economic growth prospects, which means its capital market has significant upside potential.
“Bangladesh has emerged as a promising investment destination due to its vibrant economy and strategic location. With a burgeoning population of over 170 million, a youthful demographic, and substantial economic growth, the country presents a landscape rich in opportunities. Its commitment to infrastructure development, expanding industrialization, and a steady rise in foreign direct investment (FDI) underscore its attractiveness to investors seeking diverse markets.”
“Bangladesh’s economic resilience, progressive reforms and focus on sectors like RMG, agriculture and technology position it as a potential economic powerhouse in the region and regarded as “the next Asian tiger”, making it one of the most exciting long-term investment opportunities of anywhere in the world.”
Below are some of the key factors making Bangladesh such an exciting opportunity for investors.
One of the fastest growing economies in the world
Bangladesh has shown consistent economic growth, with an average GDP growth rate of 6% over the past decade. Projections from the IMF suggest that Bangladesh’s GDP growth is poised to sustain between 6% and 7% over the coming years. Upon completion of the major infrastructure projects in Dhaka and Chattagram, it’s projected that these developments will significantly accelerate the country’s GDP growth by substantially reducing both the time and cost of doing business.
2nd largest Ready-made garment (RMG) exporter
The garment sector is a cornerstone of Bangladesh’s economy, contributing around 84% of the country’s total export earnings and directly creating 5 million employments in the country. In FY23, the country exported apparel products worth about $47.0 billion, maintaining its position as the 2nd largest RMG exporter globally after China.
Youth and progressive demographic dividend
Bangladesh boasts a sizable population of 170 million, with nearly 60% below the age of 25. The adult literacy rate stands at 74.4%, and approximately 42.0% of women actively participate in the labour force. Notably, poverty rates decreased significantly from 48.9% in 2000 to less than 18.7% in 2022. These improvements in demographics, literacy, healthcare, and poverty reduction contribute to a strong labour force and foster innovation, essential for driving economic growth.
Steady investment and global trade growth
Over the past decade, Bangladesh has experienced a significant surge in Foreign Direct Investment (FDI). Gross FDI inflow in FY11 was not even a billion dollars and has increased fivefold to now stand at around $4.7 billion. The enhanced trade relationships, especially with the European Union and the United States, have also catalysed export growth, consistently achieving double-digit growth annually. In FY13, Bangladesh’s global trade accounted for $60.9 billion, which has now more than doubled to $125.1 billion in FY23.
Resilience and adaptability to calamities
Despite challenges like frequent natural disasters, Bangladesh has shown resilience. The country has established early warning systems for cyclones, floods, and other calamities. For instance, the country has undertaken significant efforts in climate change adaptation including the construction of 12,000 cyclone shelters, building embankments and raised platforms in flood-prone regions and conducting extensive awareness and preparedness campaigns to reduce the vulnerability of communities.
Rapid upgradation of infrastructure
Bangladesh has been investing heavily in infrastructure – around $55 billion in the last decade – notably in transportation and energy.
Sufficient power supply to cater the growth
Over the past 15 years, Bangladesh has substantially increased its power generation capacity by establishing new power plants, upgrading existing infrastructure and improving transmission networks. The country’s total power capacity has surged to 25,000 MW (70% overcapacity), a notable increase from 4,000 MW in 2008. Diversification of energy sources, with reduced reliance on gas from 82% to 50% over the years, has been a strategic move to diminish dependency on a single source. Private sector involvement has played a pivotal role in this successful growth.
Shahbaj Talat said: “Bangladesh is on the brink of joining the prestigious “half a trillion dollar” GDP club. With its GDP reaching $407 billion and the Market Capitalization (MCAP) of the premier bourse at around $71 billion, the country’s MCAP/GDP ratio stands at 17%. By comparison, developed nations like the US, UK, Japan and Singapore boast MCAP/GDP ratios above 120%, while prominent developing countries like China, Indonesia and Brazil have MCAP/GDP ratios around 50-60%. This stark contrast highlights Bangladesh’s untapped potential in the capital market and presents a significant opportunity for the capital market to grow strongly.”
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