Cheap stocks, no takers: Why the market is muted despite election season
Analysts say the capital market is currently deeply depressed, marked by low participation from institutional investors, a lack of fresh fund inflows, reduced foreign investment, and a challenging situation for large investors
With the national election two weeks away, Bangladesh's stock market is trading at valuation levels last seen two decades ago, yet investor confidence remains conspicuously absent.
Defying the pre-election rallies seen in the recent past, the benchmark DSEX has remained under pressure, exposing a market weighed down not just by political uncertainty but also by deeper economic and structural weaknesses.
Data from the Dhaka Stock Exchange (DSE) show the market's price-to-earnings (P/E) ratio slid to 8.6 times by the end of November 2025 – near its lowest point since January 2004 and far below the long-term average of 15-20 times.
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Despite such low valuations, turnover has remained muted and selling pressure has dominated most sessions in recent weeks, signalling a lack of confidence among both retail and institutional investors.
Market participants say the failure of cheap valuations to trigger a rebound reflects a convergence of headwinds: elevated interest rates that have pushed risk-free government bond yields above 10%, losses that have weakened institutional balance sheets, reduced foreign investor participation, and concerns over earnings quality, particularly in banks and financial institutions.
As a result, expectations of a post-election recovery now hinge less on sentiment and more on whether macroeconomic stability and policy support materialise.
Professor Abu Ahmed, a former teacher of economics at the University of Dhaka and the current chairman of the Investment Corporation of Bangladesh (ICB), told The Business Standard that most stocks remain undervalued, with some blue-chip shares trading at discounts of 30% to 40%.
He expressed the hope that, after the election, the new government would take steps to support the capital market and the broader economy, including a shift from contractionary to expansionary monetary policy and a lower interest rate regime for treasury bill and bond market, which could help divert funds back into equities.
Analysts say the capital market is currently deeply depressed, marked by low participation from institutional investors, a lack of fresh fund inflows, reduced foreign investment, and a challenging situation for large investors, many of whom have seen over 30% erosion in their portfolios and remain stuck amid prolonged volatility.
Moreover, government treasury bills and bonds are now offering risk-free returns of over 10%, with yields going as high as 12%, attracting institutional investors seeking secure earnings amid a volatile market.
Asif Khan, chairman of EDGE Asset Management Company, told TBS, "It is true that the market has been fairly weak recently. Most investors cite political uncertainty, high interest rates, and other factors as the main causes."
Referring to DSE data, he noted that the market's P/E ratio stood at just 8.6 times in November, one of the lowest levels in the past 20 years. He also pointed out that the market has remained bearish for four consecutive years, from 2021 to 2025.
"Some monetary easing and a smooth election could pave the way for a strong year for the DSE in 2026," he said.
Pre-election pattern breaks
Historically, the capital market has often gained momentum in the month before national elections. Data show that under the interim government in December 2008, ahead of the ninth parliamentary election, the DSEX rose by more than 250 points.
This time, however, the pattern has reversed. The current election is also scheduled under an interim government, but the market has been volatile in the run-up to polling.
In December, over 20 trading sessions, the DSEX lost a total of 299 points in 13 sessions, while gaining 223 points in the remaining sessions, resulting in a net decline of 76 points.
According to recent DSE data, following the announcement of the election schedule, stocks traded for 22 consecutive days, with 12 sessions ending in declines and the index remaining largely in negative territory.
Looking back, the DSEX rose by 252 points during the election month of December 2008. Before the tenth national election in January 2014, the index gained 83 points, while ahead of the eleventh election in December 2018, it rose by 94.8 points. Before the last election in January 2024, the index increased by 21 points.
An exception to the recent weakness was seen on Sunday, the first trading day of the week, when the DSEX jumped by 76 points as several blue-chip and insurance stocks surged.
Saiful Islam, president of the DSE Brokers Association, told TBS that the capital market has historically gained momentum ahead of elections, driven by hopes surrounding new government and policy expectations.
"This year, the capital market has yet to gain election momentum, but I hope it will pick up once the election manifestos are released," he said.
However, he cautioned that investors must act responsibly during trading.
"During the last two major market debacles in 1996 and 2010, momentum built up before the elections, but the market eventually suffered afterwards," he said.
Saiful also pointed to a shortage of quality stocks. "We have urged the listing of good, fundamentally strong companies, but uncertainty remains over how many banks and non-bank financial institutions will survive. Most stocks are now junk, which discourages investors."
"Moreover, high interest rates are creating obstacles to channeling funds into the capital market, as many large investors prefer treasury bonds and bills," he added.
Still, he hoped for a rebound after the election if the new government takes steps to develop the market.
Economic headwinds cloud outlook
Calling the current situation unusual, Akramul Alam, head of research at Royal Capital, told TBS that the market ahead of this election looks very different from previous cycles.
"Earlier elections were largely routine, but the situation this time is different," he said, pointing to strong economic headwinds, including the highest level of non-performing loans in the region, sluggish private sector credit growth, and challenges such as the energy crisis, all of which are weighing on business expansion and investment.
"While the capital market may experience temporary momentum before or after the election, sustaining it requires improvements in macroeconomic conditions. Any short-term rally alone will not be sustainable," he added.
Akramul also noted that interest rates on treasury bonds need to fall, as investors earning 11% to 12% risk-free returns are unlikely to move into equities. At the same time, private sector credit growth must pick up, alongside a broader shift from contractionary to expansionary policies to encourage investment.
Nazrul Islam, former president of the Bangladesh Merchant Bankers Association, echoed similar concerns, saying many institutions remain on the sidelines because they lack the capacity to inject fresh funds after suffering losses from recent volatility.
He said around 50% institutions have experienced significant portfolio erosion. "Despite what appears to be a better time to invest now, they are unable to participate due to a lack of fresh funds," he said.
A managing director of a leading brokerage firm, speaking on condition of anonymity, added that the recent merger of five banks has severely affected investors, with some investments wiped out entirely.
He further noted that the Investment Corporation of Bangladesh, which plays a key role in supporting the capital market, is itself under strain and seeking government support.
"Without fresh fund inflows, the capital market cannot remain vibrant or gain momentum," he said.
