[An email discussion among some of the members of bdinvest mailing list - excerpted here]
Having had a day of meetings here in Ho Chi Minh City with mostlyfund managers and brokerages, I have to say that this market, down46% from peak on March 17, 2007, is probably considerably moreinteresting over the next 12-18 months than Bangladesh. One of themain reasons, without a doubt, is that the Ministry of Finance justusurped authority from the central bank yesterday and has made thestability and continued growth of the capital markets apriority. I wonder if it’ll take a similar type of crash for Bangladesh to takeauthority away from the skeletons at the SEC. - Rahat
March 7, 2008 at 12:12 pm
[From Ifty]
Dear Rahat,
Interesting to hear your experiences in Vietnam and the
comparables to
Bangladesh. I’m a little torn on the prospects for the DSE over the
next 12 months.
On the one hand the contrarian in me is worried about any market
that
goes up 87% in one year. I have also seen the recent interventions
from regulators that seem to worrying corporates as potentially
troublesome. The economy will inevitably slow this year given the
global backdrop and rising oil prices.
The 20 % fall in the Sensex from the peak still likely has some ways
to go after the extremely populist budget with the deficit/GDP ratio
in India likely to hit 7.5%. Looks like it has a lot further to
go down.
On the other hand, structural forces may continue to shift the
demand
curve to the right for Bangladeshi equities independently of
stretched
valuations on a basis vs Pakistan and other in the region. Foreign
investor flow may remain significant given the launch of a number of
new frontier funds though the lack of sufficiently large and liquid
stocks on the DSE vs other frontier markets may be an impediment.
But I heard Merrill and JP Morgan were in town Wed albeit on more an
exploratory basis. Their bias seemed to be to wait the elections
were
over before greater commitment
The recent newspaper article on SEC rule changes to allow more
pension
fund investment may also be a boost though pension funds in
Bangladesh are relatively small.
The sensitivity of Bangladesh to the US slowdown seems to be
offset by
the “Walmart effect” that is that as the US slowdown forces consumer
to tighten their belts that tends to favour lower end goods which
helps discounters and also countries like Bangladesh that focus on
lower end textiles. Note the WSJ article yesterday on Walmart sales
exceeding Street expectations. So on a relative basis Bangladesh
may
slow rest than others in the region though absolute slowing of
growth
to 4% seems extremely likely.
However, seems on a relative basis Vietnam is a much better risk-
return bet than Bangladesh though I would think an outright short in
the latter might be predicated on greater global markets weakness
and
an acceleration in the Sensex downturn.
March 7, 2008 at 12:13 pm
[From Taimur]
On Vietnam, I am not sure what “MOF taking authority from the
central bank”
mean, as I was under the impression that in that country the
central bank does
not have independence and it is a formal arm of the MOF anyway.
Vietnam, from what I hear, is a case of hype overtaking reality.
Way too much
inflow over the past year has made macro management incredibly
hard, and
clearly the authorities are out of their depth in handling the
situation.
These are important lessons for the policy makers in Bangladesh.
Everyone
wants foreign capital, but these days it can easily be matter of
too much of
good thing.
March 7, 2008 at 12:13 pm
[From Shadman]
Vietnam after the 46% drop may be a bargain but one has to keep in
context that Bangladesh equity market has gone down similarly
after the artificially generated bubble during the 90s. Looks like
Vietnam was just the latest ASEAN member to experience a “Pump and
Dump” by international portfolio investors. We went through a
similar situation in BD before { A pump and dump scam created by
certain local and Indian players] but sadly nothing changed. There
is a lot of talk about going towards book building as opposed to
the NAV method to increase floatation of new companies and there
is a lot of talk about building a fixed income market. However
just like everything else in Bangladesh it is taking a lot of
time. What is glaringly missing from all of south asia despite its
critical importance is a functioning commodity market. After all
agriculture remains a major part of the economy in all these
countries.
I am of the opinion that Western banks to avoid slow down in
earnings will need to explore many different “frontier markets”.
In that context Bangladesh is not competing with vietnam,
Kazakhstan, Pakistan etc. per se as they will need many such
smaller markets to offset a slowdown of a larger market like US,
China etc. Global growth is slowing down…US is at the minimum in
a recession, Japan and EU will soon follow. There is talk of China
slowing down to below 10% and India to 6-7% range. In that
scenario even the 6.5% outlined for Bangladesh seems a tad
optimistic. Be that as it may, bear markets are great time for
real investments and private equity players who have a reasonable
RRR. Walmart effect will help us to an extent, but what may help
us even more is any slow down in China will force it to widen the
band on Yuan against the Dollar [ Though I don't see a complete
abandonment of the "managed float regime" just yet] leading to an
appreciation. Indian rupee is also appreciating against the dollar
[ despite the recent retracement]. Thus Bangladesh may see its
already existing cost advantages over these countries get
magnified. And this goes way beyond ready made garments. Since
China is now the world’s factory, there will appear many arbitrage
opportunities for local producers. Coming democratic government in
the US will also bring about tougher environmental and safety
regulations that may also put pressure on the Chinese industries.
If smaller players like Bangladesh or vietnam are nimble enough
they may carve out a sweet spot for themselves in that millieu.
Question is are they ready and do they see it coming?