Investors should stick to blue chips for a longer time: NM Al Hossain

With the grown-up $125 billion in annual foreign trade and a $100 billion foreign debt exposure, the Bangladesh economy is much more connected with that of the world nowadays and the sought-after ending of the macroeconomic turbulence mostly depends on international factors, said investment analyst NM Al Hossain.

The head of Research and Investment at Sheltech Brokerage Ltd believes completely quitting the stock market is not a good idea during turbulence, instead investors should eye investment opportunities with minimum risks.

Not investing borrowed money and sticking to the blue-chip stocks for a longer term is his strategy now that can save the stock investors' turbulent days.  

At The Business Standard's weekly show "TBS Markets", Al Hossain on Saturday said  Bangladeshi blue-chip stocks in the last two-three decades generated over 15% compound annual returns for investors on average to outperform the economy, the broader stock market and of course beat the inflation.

"Some sectors did even better," he said, for instance, the average return from the leading pharmaceutical companies' shares was 35% over the 2002-2012 period and 15% during 2012-2022.

The correlations observed

Bangladesh's stock market due to its previous records had been believed to be negatively correlated with the international markets, Hossain said, adding that means in the bad days of other major markets abroad, the local stock market used to keep rising.

But it is changing since the beginning of the last decade as the economy is getting deeper ties with the global economy.

"We cannot say anymore that our market is negatively correlated with the international markets. In fact, nowadays, we positively correlate" he said.

Inflation pressure might ease in the winter, but afterwards, uncertainties might return as the local energy consumption would rise again, he said.

The expected loans from the International Monetary Fund might help foreign currency reserve to some extent as a balancing factor, but the ending of bad days would mostly depend on the global economic factors, said Hossain.

However, energy security through more local gas sourcing might also help the economy significantly, he said, thanking the outcome of the Bibiana gas field that was discovered more than two decades ago and now is catering to 45% of the country's natural gas consumption.

"The sizable gas field was a strong factor behind the happy days of the 2000s for the Bangladesh economy and the stock market."

Another interesting correlation the analyst mentioned in his interview was the blue-chip stocks' underperformance during the broad market's roaring days and outperformance following the broad-based indices' big declines.

Following the 2010-11 crash in the bourses of Dhaka and Chattogram, undervalued blue-chip stocks including the multinational industry leaders significantly rallied to generate shareholders' wealth, which was not strong enough during the recent leg of the bull market dominated by non-blue-chip stocks.

"I think it (blue-chip stocks' outperformance) is going to happen again in the coming years and I do not fear while holding blue-chip stocks, especially from the sectors that are less affected by economic cycles."

"High-interest rates, however, are bad for all, even for the lenders after some extent" and local rate hike possibilities are on his caution list.

He also expects at least some short-term rallies in the market, even before the macroeconomic crisis ends.