Political instability, liquidity crunch top challenges for capital market in 2025: Survey

Political instability and liquidity crunch have been identified as the most significant challenges facing the capital market this year, according to a new survey by LankaBangla Securities – the country's leading brokerage firm. 

The survey, titled Bangladesh Capital Market Sentiment Survey 2025, revealed that respondents viewed the election of a stable political government and improved macroeconomic conditions as the most positive factors influencing the market in 2025.

Conducted as part of LankaBangla Securities' 13th annual event, the survey gathered insights from over a hundred participants, including investment bankers, managing directors, CEOs, brokerage executives, service holders, retail investors, businessmen, students, and individuals from various other backgrounds. 

The online survey was carried out between 15 December and 25 January.

According to the findings, 34.7% of respondents agreed and 11.9% strongly agreed that the political environment in 2025 would support market growth. Additionally, 32.7% of participants believed that stable macroeconomic conditions would be a key driver of market expansion, while 24.8% highlighted the election of a political government as a critical factor for future growth.

However, the survey also highlighted concerns regarding foreign investment. Approximately 34.7% of respondents cited currency depreciation as a major barrier, while 30.7% pointed to political risks as a significant deterrent to foreign investor participation.

The survey has revealed growing concerns over the transparency and accountability of the Bangladesh Securities and Exchange Commission (BSEC), with 38.6% of respondents rating its performance as average, while 36.7% described it as poor or very poor. 

The findings highlight a significant lack of public confidence in the commission's ability to effectively oversee market operations and enforce regulations.

The survey also shed light on the public's scepticism toward the new leadership at the BSEC. Nearly half of the respondents expressed a lack of confidence in the new leadership, with only 8.9% stating they were very confident in its ability to steer the market toward stability and growth.

Respondents identified several critical areas for improvement, with ensuring market liquidity emerging as the top priority. A significant 40.6% of participants recommended that the regulatory commission focus on enhancing liquidity to stabilise the market. 

Improved surveillance systems were the second most recommended measure, with 17.8% of respondents emphasising the need for better monitoring and enforcement mechanisms to curb malpractices.

The survey also highlighted widespread demand for reforms in key areas of market regulation. IPO pricing was identified as the most pressing issue, with 51.5% of respondents calling for changes to ensure fair and transparent pricing mechanisms. 

Additionally, 25.7% of participants suggested revising free float requirements to promote greater market participation and reduce volatility.

2025 outlook

The survey report from LankaBangla Securities revealed a split in market expectations for the Dhaka Stock Exchange's (DSE) benchmark index, DSEX, by the end of 2025. While 30.7% of respondents predict the index will close between 5,000 and 5,500 points, an equal percentage anticipate it will finish in the 5,500 to 6,000 range.

The survey also highlighted expectations for average daily turnover on the DSE in 2025. A majority of respondents (64.4%) forecast turnover to range between Tk400 crore and Tk600 crore, signalling moderate optimism about trading activity.

When it comes to investment strategies, medium-term investments emerged as the most preferred approach for 2025, with 32.7% of participants favouring this option. Long-term investments followed closely at 29.7%, while 24.8% of respondents indicated a preference for passive observation, reflecting a cautious approach amid market uncertainties.

Pharmaceuticals were overwhelmingly identified as the sector expected to lead market growth in 2025, with 69.3% of respondents highlighting its potential. Banks came in second, with 41.6% of participants expecting them to contribute significantly to market growth, while the IT sector rounded out the top three at 26.7%.

Performance in 2024

The survey revealed widespread dissatisfaction with the performance of the capital market in 2024, with a staggering 79.2% of respondents rating it as poor or very poor. Only a small fraction of participants viewed the market positively, with 3% describing its performance as excellent and 6.9% rating it as good.

The survey identified several critical issues plaguing the capital market. A liquidity crunch was cited as the most significant factor by 58.4% of respondents, followed closely by market manipulation at 49.5%. 

Regulatory interventions and changes in government and regulatory commissions were also highlighted as major challenges, each noted by 49.5% and 40.6% of respondents, respectively.

The new regulatory commission's policies received mixed reviews, with 23.8% of respondents considering them somewhat effective. However, a larger portion remained neutral, while 20.8% found the policies ineffective and 15.8% rated them as very ineffective.

Despite the challenges, some regulatory reforms were viewed positively. Penalising market manipulators and enhancing transparency in market operations were seen as the most effective steps taken by the regulatory commission. Streamlining IPO approval processes and reforming taxation policies were also noted as constructive changes.

The recent change in government had a mixed impact on market confidence. While 33.7% of respondents reported a slight increase in confidence and 12.9% noted a significant boost, 25.8% experienced a slight or significant decrease in confidence.

Financial market integrity in crisis

The survey painted a grim picture of the integrity of the financial markets in 2024, with a staggering 79.2% of respondents rating it as poor or below average. This widespread dissatisfaction highlights the urgent need for reforms to restore trust and confidence in the market.

Despite the bleak assessment of 2024, nearly half of the respondents believe the integrity of the financial markets will improve in 2025. However, 43.6% expect it to remain the same, and a small portion predict further deterioration.

Respondents identified several critical measures to restore integrity and trust in the financial markets. Enhanced transparency in financial reporting and corporate disclosures, as well as improved enforcement of existing laws and regulations, were seen as the most necessary actions. Other notable recommendations included improving corporate governance practices and implementing stricter trading rules to prevent manipulation.

Market fraud and manipulation were identified as the most pressing ethical issues in 2024, with 39.6% of respondents highlighting their detrimental impact. Integrity in financial reporting and market trading practices were also cited as significant concerns.

The survey revealed ongoing concerns about the capacity of the BSEC to effectively regulate the market. Nearly half of the respondents believe the BSEC continues to face capacity constraints, while 22.8% disagreed.

To restore investor trust, respondents emphasised the importance of improved transparency in the regulator's decision-making and tax reforms to reduce the burden on investors. Enhanced surveillance systems for real-time monitoring and strengthened investor education initiatives were also identified as key priorities for the coming year.