Clearer policies, macroeconomic stability boost foreign investor outlook: Ruchir Desai

Ruchir Desai, fund manager at Asia Frontier Capital Ltd, sat down with The Business Standard to discuss Bangladesh's current investment climate, how it compares with neighbouring countries, and what lies ahead for the stock market.

When did you start investing in Bangladesh?

We have been investing in Bangladesh since 2013. My first visit to the country was in 2015.

Tell us about your company's investment.

We invest in listed equities across Asian frontier markets. These include Bangladesh, Pakistan, Sri Lanka, Vietnam, Kazakhstan, Uzbekistan and Mongolia.

Asia Frontier Capital is collecting funds from high-net-worth individuals and family offices, primarily from Europe, Switzerland, and the UK. Currently, the size of our fund is around $110 million.

How do you see Bangladesh's current situation?

Compared to a year ago, the situation is much more stable. Back then, there was political instability, macroeconomic uncertainty, and questions around policymaking. Today, both the macroeconomic and political environments are more stable, and policies are more predictable.

But if you compare Bangladesh to Pakistan and Sri Lanka, the similarities are clear. Sri Lanka went through a major crisis two years ago, defaulted on debt, and had to bring in an interim government. Pakistan also faced political and economic turmoil in 2022 and nearly defaulted before entering an IMF programme in mid-2023.

Bangladesh has not defaulted, but in many ways, it is in a similar position to where Sri Lanka was two years ago – on the cusp of stabilisation. Sri Lanka turned around in 2023 after inflation peaked, interest rates began falling, remittances rose and exports picked up. The market reflected that optimism.

Bangladesh's market valuations are currently at a low, with a price-to-earnings (P/E) ratio of just 9.7. This figure is comparable to the ratio seen in Sri Lanka during its market downturn, indicating potential for a recovery if market stability is sustained.

What are your expectations for the market in the near term?

I think the outlook is improving. Inflation is easing, the exchange rate has more or less stabilised, remittances are strong, and the current account is in surplus.

If interest rates start to come down, we could see positive momentum return to the market. Stock prices have not yet reflected these positive factors. So, over the next year or two, there is potential for a meaningful recovery.

How do foreign investors view Bangladesh?

Confidence is gradually improving, but foreign investors need to come to Bangladesh and see the changes on the ground themselves. Sitting in London or New York, they only read headlines about political uncertainty or inflation. But when they meet companies here and see the situation first-hand, they can better appreciate the progress being made.

We are already seeing incremental interest from foreign investors. If things continue to improve – especially after the upcoming elections – that interest is likely to grow. For me, a smooth election in early 2026 with no major policy shifts would be a major trigger for the market. That's when confidence will really return, just as it did in Sri Lanka after its elections.

Sri Lanka's recovery shows what is possible. Once macroeconomic stability was restored in 2023, inflation began to ease, interest rates peaked, and investor confidence came back. The market quickly reflected those improvements and rallied further as companies and consumers started spending again.

Bangladesh is now in a similar position. The macroeconomic picture is turning positive: inflation is declining, political and policy stability has improved, demand is returning, and investor confidence is slowly coming back. Looking ahead one to two years, if inflation keeps easing, consumption strengthens, GDP growth picks up, and elections are held smoothly, we could see much greater foreign investor participation.

I am not looking at a short-term, three- or six-month horizon. I'm taking at least a two-year view. From that perspective, the fundamentals are turning a corner: the current account is in surplus, remittances are strong, exports are holding up, domestic consumption is recovering, and interest rates should eventually come down. If policies remain stable after elections, valuations will likely re-rate, and the market will reflect this outlook earlier, as it always looks ahead.

What is your current investment position in Bangladesh?

We recently increased our investment in Bangladesh just last week. Right now, about 9% of our fund is allocated to Bangladeshi equities.

For comparison, our largest allocations are to Pakistan (16%), Sri Lanka (14%), Iraq (10.5%), Uzbekistan (10%), and Vietnam (around 9%). Bangladesh is in that same league.

Why do you think the market has not performed well?

From 2013 to around 2018-19, valuations were quite reasonable. But then came a series of policies that hurt investor confidence: The interest rate cap, market closure during the pandemic, the imposition of a floor price, in particular, was damaging because it killed liquidity in the market. Investors lost confidence, both local and foreign. On top of that, dollar depreciation added more uncertainty.

So, while the fundamentals of the economy may be strong, these kinds of interventions have weighed on the stock market.