Why Bangladesh's capital market is poised for a bull run

As Bangladesh emerges from years of economic turbulence, a rare alignment of factors is setting the stage for its capital market to roar back to life. From a stabilising macroeconomic backdrop to structural reforms and improving external balances, the conditions are falling into place for a long-awaited bull run. For investors willing to look beyond short-term fluctuations, this could be a once-in-a-generation opportunity.

A reform-driven stability

For years, rigid administrative controls on interest rates, exchange rates, and stock prices stifled market dynamics and eroded investor confidence. But since mid-2024, decisive policy shifts under the interim government have begun to reverse that trend.

Bangladesh Bank's disciplined monetary tightening and market-based reforms are starting to bear fruit. Inflation, which peaked at 11.66% in July 2024, has fallen to 8.5% as of June 2025, with scope for further decline. Foreign reserves have rebounded from $18.6 billion to around $25 billion, and the local currency has stabilised after years of volatility.

Meanwhile, the BSEC has accelerated market governance reforms by forming task forces and focus groups comprising experts and practitioners to update mutual fund and listing regulations. Key changes include allowing conversions from closed-end to open-end funds, tightening dividend transfer timelines, mandating independent directors for listings, and imposing penalties for shareholding violations – all aimed at boosting transparency and investor protection.

Improving balance of payments: Indicator of external stability

Bangladesh's external position has significantly improved. The overall balance of payments deficit narrowed to $1.15 billion in May 2025, down from $5.89 billion a year earlier. The current account deficit contracted by a staggering 85%, from $4.4 billion to just $659 million in the first nine months of FY25.

Exports and remittances – the twin engines of foreign exchange inflows – are gaining momentum. Exports reached an 11-month high of $4.74 billion in May 2025, while remittances surged nearly 28% during the July 2024–March 2025 period. These debt-free inflows are providing a strong cushion for the economy.

Interest rates set to ease

Bangladesh Bank's recent actions – including targeted liquidity injections in weaker banks and the purchase of US dollars, alongside a 50-basis-point reduction in the Standing Deposit Facility (SDF) rate – signal a measured shift from a tight monetary stance towards growth-supportive policies, while still managing inflation risks.

As yields soften from historic highs, conditions are ripening for a positive response from equity markets.

Equities: Undervalued and ready for repricing

Investors' collective memory of the past four years, simply a period marked by steep market declines and unrelenting uncertainty, has left equity valuations deeply depressed. The benchmark index, still languishing near 5,100, reflects sentiment more than fundamentals. Yet, many high-quality companies – those with strong governance, low leverage, and solid earnings capacity – are quietly consolidating their positions as weaker peers falter.

With earnings momentum building and valuations at multi-year lows, equities are primed for a re-rating. The early signs are already visible:

• Quality companies are demonstrating resilience despite macroeconomic headwinds.
• Treasury yields, after remaining historically elevated, are softening as monetary easing begins.
• The central bank's targeted liquidity injections are fostering stability across asset classes.

Historically, markets tend to rally ahead of visible economic recovery. Waiting for perfect macro clarity could mean missing the sharpest part of the upturn.

A dual opportunity: Bonds and equities aligned

It is rare for both fixed income and equities to offer compelling opportunities simultaneously. Yet today, longer-tenor government treasuries – with yields above 12% – are poised for capital gains as interest rates begin a downward shift. Equities, meanwhile, remain priced for pessimism, even as fundamentals improve.

For asset allocators, this is a rare moment to rebalance towards growth assets at deeply attractive entry points. Strategic allocation to high-duration bonds, alongside selective equity exposure, could generate strong risk-adjusted returns in the near future.

Why acting now matters

Ongoing challenges in the economy, including non-performing loans, reduced private investment appetite, and banking sector fragility, remain unresolved, with policymakers yet to determine how best to address many of these issues. Although these risks are real, they are increasingly asymmetric. Much of the bad news is already embedded in current equity valuations, while upside catalysts such as a dovish central bank stance, improving fiscal health, and corporate resilience, remains to be reflected in price.

The window for accumulating high-quality assets at distressed prices is unlikely to remain open indefinitely. As market sentiment shifts and it inevitably will at some point in time, those positioned early will benefit the most. This is not merely an opportunity; it is a test of conviction.

A generational opportunity

Bangladesh's capital market has long endured neglect and scepticism. But as capital reallocates from stagnation to growth, the coming cycle could be transformative. For institutional investors and prudent asset managers, the imperative is clear: act now, with discipline and vision, to capture the outsized rewards of this inflection point.

In investing, the greatest gains come to those who recognise opportunity while others remain paralysed by fear. The tide is turning in Bangladesh. The most transformative wealth will be created by those with the foresight to step in early.

This article reflects the writer's personal opinion and does not constitute official investment advice. Investors should assess their individual risk profiles and/or consult a qualified financial adviser before making investment decisions. 

The writer is a Fellow of the Association of Chartered Certified Accountants (FCCA) and the Chief Operating Officer at Midland Bank Asset Management Company Limited.