More listing, institutional investment key to sustainable capital market development

The economic development of Bangladesh is a story of hope for all developing countries.

But its capital market is way behind even among its smaller peers like Vietnam, be it in terms of capital market products, listing with bourses or investors' engagement.

For sustainable development of the capital market (to enable it to play a proper role in economic development), experts emphasise listing of more high-performing companies, diversifying capital market products, and most importantly significantly strengthening the institutional investor base.

At an online seminar jointly organised by the Bangladesh Merchant Bankers Association (BMBA) and Capital Market Journalists Forum (CMJF) on Saturday, experts, entrepreneurs and policymakers also stressed the need for supportive policies, regulations, governance and building the right attitude.

In his keynote presentation, BMBA Vice President, Md Moniruzzaman, said there are only six billion-dollar companies in Bangladesh bourses, while Vietnam, despite its smaller economy, has 30 listed companies with billion-dollar market capitalisation. This indicates the inability of the stock market here to attract large companies.

He also revealed the unfortunate state of raising capital through initial public offerings (IPO) in Bangladesh, which was 26 times higher in Vietnam, 25 times higher in Thailand and 32 times higher in India.

BMBA President, Md Sayadur Rahman demanded an increase in tax and other policy incentives for listed companies, so that deserving entrepreneurs are lured to capital market listings.

Tax benefit will not be effective in attracting companies to the bourses until the culture of tax defrauding is significantly reduced, opined CMJF Founder President Ziaur Rahman.

Sheikh Fazle Fahim, president of Federation of Bangladesh Chamber of Commerce and Industry, emphasised the importance of good governance across the financial sector and demanded more benefits for listed companies, so that increased listings can yield more revenue for the government despite the tax cuts.

He also requested the central bank, tax authority and capital market regulator to work together in this regard.

Praising the actions of new leadership at the helm of Bangladesh Securities and Exchange Commission (BSEC), the Dhaka Chamber of Commerce and Industry President, Shams Mahmud, focused on inspiring medium enterprises with promising potential, rather than only looking for large companies.

The business community leader also requested that capital market product diversification be expedited.

BSEC Chairman, Professor Shibli Rubayat-Ul-Islam, informed webinar attendees about the recent pace and dynamism in capital market development, which includes initiatives to digitalise, to streamline approval processes, to diversify product bases, increase accountability, transparency and governance.

In recent months, his office has been strongly advocating for supportive policies that can help to develop a sustainable capital market.

The keynote presenter from the BMBA said Bangladesh is also currently lagging behind its regional peers in terms of ability to engage people to invest in the market, while institutional investors' base is also quite poor.

Salman Fazlur Rahman, a lawmaker and the Prime Minister's private industry and investment adviser, said, "In Bangladesh, 80-85% trades in stock markets are done by retail investors and this is a big weakness."

Policymakers and regulators in Bangladesh have been responding to political demands for protection of retail investors, regardless of the steps they take – right or wrong. These protections often go beyond the spirit of the market.

Assets under mutual fund management are equal to around 3% of the market capitalisation, but their trading contribution is even lower, Salman F Rahman added while he was speaking as the chief guest.

He also feels the market needs a huge base of institutional investors, as well as a shift in mass investors' attitude towards gains and losses.

He called for making informed market decisions, rather than blaming policymakers and regulators.

Salman said manipulation takes place at stock exchanges, which brokers are aware of.

But the role of stock exchanges to fight these irregularities is in question, despite all the surveillance mechanisms at their disposal, said the prime minister's adviser, a long-time advocate for market-based economic development.

Holding BSEC solely responsible for monitoring and surveillance, rather than the bourses, is illogical and irrational.

He also supported the Chittagong Stock Exchange (CSE) proposal for introducing digital account opening forms, which would ease matters for both home and overseas investors.

AKM Shahroze Alam, CSE's head of market development, said if investors can instantly open a brokerage account online, it would help to boost demand in the capital market.

The BSEC chairman, while speaking as a special guest, informed the seminar attendees that his Commission is swiftly moving to adopt a complete digital regulatory and market infrastructure, while working on a comprehensive plan to increase institutional participation in the market.

CMJF President, Hasan Imam Rubel, presented welcome remarks, while the event was moderated by the Association's General Secretary, Munir Hossain.

A large number of market professionals, government officials and capital market reporters were in attendance.