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Introduction:
A financial market is a market in which people trade financial securities. Financial markets are
facilitated through the flow of funds in order to finance investments by corporations,
governments, and individuals. Financial Institutions are the key players in financial because
they serve as intermediaries that determine the flow of funds. So, among them we have to
channelize the fund in proper way to give the opportunity for investment.
Financial market has been playing an increasingly important role in the development of a
Country. There are many segments of financial market including money market, stock market,
bond market, insurance market, foreign exchange market. Money moves from one segment to
another segment of the financial market due mostly to the relative rates of return in different
segments.
Capital Market – Capital market is a mechanism to flow fund from the hands of small savers
(individuals and institutions) at low costs to those entrepreneurs who do need fund to start
business or to business. In the other words, capital market mechanism gives a part ownership
of big companies/corporations to small savers. In simple term, it is a globally accepted scheme
to share ownership of economic development with general public. The capital market in
Bangladesh consists of two stock exchange companies-Dhaka Stock Exchange (DSE) and
Chittagong Stock Exchange(CSE). These two stock exchanges are regulated by the
Securities and Exchange Commission (SEC). Recently capital market has flourished
noticeably due to stronger economic fundamentals of the listed companies, various measures
by its regulator SEC and opportunity of gaining more returns from holding stocks.
Money market- It is an integral part of the financial market of a country. It provides a medium
for the redistribution of short-term loanable funds among financial institutions, which perform
this function by selling deposits of various types, certificate of deposits and discounting of bills,
treasurys bill etc. The participants in the money market are: the central bank, commercial
banks, the government, finance companies, contractual saving institutions like the pension
funds, insurance companies, savings and loan associations etc. The instruments that are
generally traded in the money market constitute: treasury bills, short-term central bank and
government bonds, negotiable certificates of deposits, bankers acceptances and commercial
papers like the bills of exchange and promissory notes, mutual funds etc.
Government Bond market - Government issued various types of bonds of different tenures
for long term financing of its deficits, mainly from banks and NBFIs. Besides, for financing
the budget deficit, government issued different saving instruments through National Saving
Directorate (NSD). NSD instruments are sold to the household and collection of money from
the sales of such instruments depends mainly on the rates of interest offered by these
instruments. If interest rates on NSD instruments are lower than the return on the instruments
of other segment of financial market, government’s collection of money from sales of NSD
instruments falls.
Insurance Market – There are more than 62 insurance companies have been operating in
Bangladesh, of which 18 provide life insurance and others are in the general insurance field.
The major source of fund of insurance companies is collecting insurance premium. The
insurance market in Bangladesh has been remained insignificant on the basis of its relatively
small asset size.
The price-earning (P/E) ratio slightly decreased to 14.97 during the period under report which
was 15.67 at the end of the preceding quarter. The ratio was 15.74 at the end of the same quarter
of the preceding year. In contrast, the yield of all share increased to 3.63 at the end of June
2018 which was 3.50 at the end of March 2018 and 3.61
at the end of June 2017. Trend of Price-Earnings ratio
and yield are shown in the Chart 4.
Current Account Deficit and pressure on Exchange rate: Current account deficit of
Bangladesh reached its historical highest at USD 9.8 bn in 2018. High import growth arising
primarily from one–time surge in food grain import due to flood and sharp increase in
petroleum products import exerted significant pressure on current account. Modest
performance in export and remittance turned out to be insufficient to ameliorate it. As a result
USD gets dearer. Central bank supported the currency throughout the year, soaking up further
BDT liquidity from the market. In anticipation of currency devaluation, foreign fund managers
lowered their exposure from capital market of Bangladesh. Large caps were affected the most
by this and pulled index down with them. Corporate profitability was also hit as cost of
imported raw material rose.
Banking Sector Turmoil: Already weakened by macro pressure, vulnerability of banks asset
books were further exposed recently. As on September 2018, banking sector NPL stood at
11.5%, which would go up to 17%, if rescheduled and restructured loans were taken into
account. NPL in Bangladesh is one of the highest in this region. Trouble with a fourth
generation bank reached a critical point in last year, leading to a government administered
management change. The weak state of its books brought fragile financials of the other fourth
generation banks into limelight. Meanwhile, asset quality of public sector banks did not
improve. A few of the private commercial banks also revealed to be in dire straits. Such state
deterred investors causing a rout that shed almost USD 2 bn of Mcap from the sector.
Merger & Acquisition activities: Three big M&A activities took place in the local market
after a long time. Earlier in 2018, global Fin-tech giant Ant Financial took 20% stake in local
Mobile Financial Service provider bkash, a subsidiary of listed Brac Bank Ltd. The entrance
of the global leader in the industry is promising potentials of rapid development and innovation
in the local MFS industry. In late 2018, under a global transaction, local consumer business
unit of GlaxoSmithKline was acquired by Unilever. In last year, privately held tobacco business
of Akij group was fully acquired by Japan Tobacco International at a valuation of about USD
1.5 bn. All these big M&A activities reflect increasing interest of global giants in Bangladesh.
Given the growth story of Bangladesh, we believe the interest to get even keener in coming
days.
6. Conclusions:
The government of Bangladesh expects that GDP growth would stand at 7.8% in 2019, while
inflation would be 5.6%. Economic Intelligence Unit predicted Bangladesh to be the second
best performing economy in the world in 2019, growing by 7.9%. In concurrence, United
Nations predicted Bangladesh to be third fastest growing economy with a growth rate of
7.4%. We believe post-election stable political environment will attract domestic and foreign
investment and boost growth. As both export and remittance shows sign of significant
improvement while import growth slowed, current account balance should also improve, easing
pressure on currency. Bangladesh Bank expects Trade Deficit to be USD 17.2 bn, and Current
Account Deficit to come down to USD 6.4 bn, while BOP situation to remain almost unchanged
at a deficit of USD 0.6 bn. However, money market may remain stressed until NSC rates
rationalization, NPL buildup, such structural issues are addressed.