Capital market faces mixed trends amid global economic challenges: BB review

In its latest monetary policy review, the Bangladesh Bank highlighted the mixed performance of the country's capital market amid domestic and global economic uncertainties.

Throughout the fiscal year 2023-24, the market witnessed modest price indices and market capitalisation increases, tempered by declines in average turnover and the price-earnings ratio, as per the review published last week.

The review mentions factors contributing to this varied performance includes tight liquidity within the banking sector, pressures from depreciating exchange rates, and tightening global financial conditions worsened by geopolitical tensions.

Despite these challenges, the Bangladesh Bank's proactive monetary policy aimed at curbing domestic inflation allowed banks to sustain their investments in the stock market, supporting overall market resilience, it said.

The review also mentioned that the Dhaka Stock Exchange's benchmark index, DSEX, saw a year-on-year decline of 6.07%, while the DSE-30 index dropped by 8.38% by March 2024.

Daily average turnover at the DSE plummeted significantly by 40.35% year-over-year, underscoring investor caution amid market volatility.

Sector-wise, pharmaceuticals dominated with the highest turnover share at 16.4%, contrasting sharply with telecommunications at a mere 0.9%.

Despite challenges, eight companies successfully raised Tk2,884 crore through IPOs in 2023, reflecting continued investor interest in selected sectors.

According to the central bank review, the broader economic outlook was mirrored in global markets, as indicated by the Morgan Stanley Capital International (MSCI) index for emerging markets, which showed volatility amid an overall upward trend, suggesting cautious optimism in global economic prospects.

Overall, the capital market in Bangladesh navigates a complex landscape, balancing minor gains against significant challenges, underpinned by regulatory measures aimed at sustaining stability amidst evolving economic conditions, it mentions.

Since 2020, the global economy has experienced pronounced volatility, initially triggered by the Covid-19 pandemic and subsequently compounded by challenges stemming from the Russia-Ukraine conflict. More recently, political unrest in the Middle East has further heightened instability.

Starting in 2023, persistently high inflation and currency depreciation have pressured the economy, exacerbated by geopolitical tensions and trade uncertainties. These factors collectively contributed to a slowdown in the capital markets throughout the fiscal year.

In response to these challenges, the securities regulator implemented a floor price mechanism in July 2022. Market insiders assert that this mechanism played a crucial role in exposing the market to a liquidity crunch.