Few Milestones in DSE in 2010
The Bangladesh capital market continued to rally handsomely in 2010 even though U.S and European market had to recover from recession effect. The market capitalization to GDP ratio has been increased over the year from 30% to 50%. DSE General Index (DGEN) has gained its peak at 8,918.51 point in December 5, 2010 and the lowest value was at 4,568.40 point.
Over the year, DGEN increased 82.78% and reached at 8,290.41 point at the end of the year. The total market capitalization of all shares and debentures (excluding t-bills and t-bonds) of the listed securities at the end of December, 2010 also stood higher at USD 49.4 billion, indicating a gain of 84 percent which was higher than USD 26.8 billion at the end of December, 2009. The total turnover has increased from USD 0.13 billion to USD .25 billion which indicates a 91% growth. Along with other factors, at least a portion of the upward movement of the market can be explained by the inadequate number of securities and huge fund flow in the capital market. The market was not able to uphold its bullish position from the beginning of December, 2010.
During this time institutional investors had the tendency to realize profit from the market and it was expected that the market would remain flat in this time. However, the actual steep downward trend was not expected. One of the primary reasons for this abnormality could be the Bangladesh Bank’s decision regarding CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio) in the hope of curbing the inflationary pressure. Following the actions, call money rate has soared significantly and it rose as high as 180%, breaking the earlier record of 150% hit on March 30, 2006. From June to November, 2010 excessive liquidity decreased by 28% (see the table below).
Bangladesh markets vis-a-vis global markets
| Name of Stock Index || Fig as on Dec 30, 09 || Figure as on Dec 30, 10 || Percentage (%) change |
| BSE Sensex || 17464.8 ||20509.1 || 17 |
| Karachi 100 || 9386.9 ||12022.5 || 28 |
| DJ CBN China 600 || 29052.8 ||26701.3 ||-8 |
| Bangldesh DSE general || 4535.5 ||8290.4 || 83 |
| S&P 500 || 1115.1 ||1257.6 || 13 |
| Heng Seng || 21872.5 ||23035.5 || 5 |
During the year 2010, the DJ Global Index experienced 12% gain, whereas Bangladesh capital market (83%) outperformed all the developed markets like USA’s (12%), UK’s (9%) and leading emerging markets like India’s (17%), Hong Kong’s (5%), China’s (-8%). This outstanding performance (see the table below) positioned the Bangladesh capital market in the top three performers of the world. On the other hand, Bangladesh capital market has been exposed to greater risk since PE ratio rose from 19.9x to 29.71x from January, 2010 to November, 2010. It is the highest in the Asian regional markets.
Price Earnings in market
Towards the close of 2010, the average P/E in Bangladesh market for the stock index moved up to 29.71 times the expected anticipated earnings of index stocks, which was much higher than those noticed in the neighboring Asian pacific markets from emerging economies like India at 23.89, Hong Kong at 16, Sri Lanka at 24.69 and Singapore at 18 times. This increase reflects the bullish outlook among the investors. However, it is expected that PE ratio may be reduced to sustainable level considering earnings growth of the listed companies and steady growth of the overall economy.
Historic year for Bangladesh markets
The calendar year 2010 was a historic year in Bangladesh in which the stock market went through some breakthrough changes, to transform the functioning of capital markets in the country. These included: 1. Removal of all the paper shares from the stock exchanges and replacement of same by demat transactions. 2. Introduction of Book building method for the first time. 3. Making compulsory submission of quarterly Financial Statements by the listed companies, almost in line with other countries, to help investors gain more knowledge of the listed companies. 4. Fixing the tenure of Closed-end mutual funds. 5. Allowing mutual funds to participate in the Book Building process. 6. Government started offloading of SOE’s (State Owned Enterprises) shares through a plan of disinvestment to ensure better funds generation by government. 7. Imposition of Ten per cent Capital gain tax on institutional investor. 8. Highest number of SEC directives issued.
These transformations have put the Bangladesh stock market on a fast forward track, particularly inviting institutional confidence from FIIs in putting funds in Bangladesh stock markets due to higher corporate transparency and improved compliances and governance in place in markets.
During the year under review, all the sectors experienced an upward trend. As per the sector indices, Life insurance sector was the highest gainer providing 170% return. The other notable sectors - General Insurance (114.45%), Foods and Allied (154.74%), Engineering & Electrical Sector (122.12%), Bank (125.29%) and Leasing & Finance (156.29%) - doubled during the twelve months. Mutual fund was the least performer during the year which was 0.2%.