Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
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Speaker: Hello from Hong Kong and welcome to Under the Banyan Tree, where we put Asian markets and economics in context.
Speaker: I'm Harold van der Linde, Head of Asian Equity Strategy at HSBC.
Speaker: Well, on today's podcast, we've put in the spotlight on Bangladesh, and that is probably a market you know maybe not too much about, but it's actually one of the region's most compelling long-term growth stories.
Speaker: Joining me in the studio is fellow equity strategist Prerna Garg.
Speaker: And we've got a lot to talk about because the two of us recently put a report together on this market.
Speaker: We'll be looking at the macro, the micro and everything in between.
Speaker: It's time for you to join us under the Banyan tree.
Speaker: Before we begin, here are a few key facts on Bangladesh to keep in mind.
Speaker: There's about 170 million people living there.
Speaker: It's the 8th largest country on earth by population, home to about 2.2% of the entire planet.
Speaker: So it's a really propulous place.
Speaker: Foreign direct investments came in at about $3.5 billion in 2022, and that's up 20%.
Speaker: And that's actually not really a surprise because it's in an environment of shifting supply chains.
Speaker: People are moving factories into countries such as Bangladesh.
Speaker: As we'll come to in a moment, it has a GDP growth rate that would make most economies around the world pretty jealous, actually.
Speaker: It's also on the track to become a major consumer market within the next decade.
Speaker: Let's dig deeper into all of this with Prona Gark, Asia Equity Strategist here at HSBC.
Speaker: Prona, great to have you with us.
Speaker: Thanks for having me here, Harold.
Speaker: So tell us more about what makes Bangladesh such an interesting economy.
Speaker: So we have seen some really strong numbers coming out of Bangladesh.
Speaker: It's one of the few markets that have not seen a single year of GDP contraction since its independence in 1971.
Speaker: So 1971, so we're talking about 50 years or so, right?
Speaker: Yes, we are.
Speaker: Pretty good.
Speaker: At the same time, since 2010, the annualized growth in GDP has been over 6%.
Speaker: That's one of the strongest growth we have seen globally.
Speaker: And at the same time, Bangladesh has already surpassed India when it comes to the GDP per capita ratio.
Speaker: What, you say that Bangladesh is actually, as a country, has a higher income per capita per person than India?
Speaker: Oh, I didn't know, okay.
Speaker: Yeah, and that has taken place a couple of years back.
Speaker: So the macro horizon in Bangladesh, the macro scenario, looks pretty strong.
Speaker: And that is the reason we thought it's one of the interesting markets to look at.
Speaker: Yeah.
Speaker: But Harrell, just like a lot of other markets in Asia, think of Vietnam, think of Indonesia that are benefiting from moving supply chain.
Speaker: Do you think similar things are taking place even in Bangladesh?
Speaker: Absolutely.
Speaker: So what we see is that companies have this China plus one strategy, right?
Speaker: So they don't want all their eggs in one basket and they're looking for other markets.
Speaker: You see that electronics is going to Malaysia, also to Vietnam.
Speaker: Indonesia is a large consumer market.
Speaker: Some of the consumer markets are going there, but also they have the resources.
Speaker: So the electric vehicles are going there.
Speaker: Thailand always had automotives, so components are going there.
Speaker: Bangladesh initially had mostly textile.
Speaker: So you see textile companies have gone there.
Speaker: But to be honest, a lot of companies that want to benefit from the lower cost are already moving into other countries such as Ethiopia, if I'm not mistaken.
Speaker: What we now see is what we saw in Vietnam maybe 10, 12 years ago, that the tech companies are also coming in for assembly of iPhones and iPads and these sort of things.
Speaker: That's going there.
Speaker: And it seems that Bangladesh is also able to carve out interesting niches, architectural design.
Speaker: So I guess that's computer design or something like that is something really big.
Speaker: Bangladeshis are really good in doing so.
Speaker: So that seems to work.
Speaker: Yeah.
Speaker: Oh, that's interesting.
Speaker: I think another interesting thing about Bangladesh could be on demographics.
Speaker: We know India is young, India, but there are issues like the women unemployment is pretty high in India.
Speaker: How does Bangladesh affect when it comes to demographics?
Speaker: No, that's a very good point.
Speaker: Bangladesh is, like India, young.
Speaker: It's even younger.
Speaker: So half the population is below 25 years old.
Speaker: So it's one of the youngest countries on the planet.
Speaker: And that means you have a lot of labor supply.
Speaker: Rather, that's really good.
Speaker: Where it differs with India is maybe on two fronts.
Speaker: The female labor participation, so the amount of women that work, is actually quite high.
Speaker: And that has maybe partially been helped by the textile industry that absorbed a lot of women.
Speaker: So
Speaker: That means in a lot of households, you've got not only the husband, but also the wife making an income.
Speaker: And that's beneficial to household spending.
Speaker: That changes the consumer market there.
Speaker: The other thing is that Bangladesh has done a reasonable job.
Speaker: It probably could do more, but a reasonable job in education, which allows them not just to go from textiles into tech, but also move up the value added ladder.
Speaker: And in India, broadly speaking, I would say education is quite spotty, right?
Speaker: There are really good pockets of fantastic education and then areas where it's pretty poor.
Speaker: So it's done pretty good.
Speaker: And does it mean anything for the consumer market?
Speaker: Because it's ultimately the population that is the consumer in every economy, right?
Speaker: Absolutely.
Speaker: So, well, you and I together, we've actually made projections, right?
Speaker: How does the consumer in Asia look like by 2030?
Speaker: And what Bangladesh is, is actually as a consumer market, the number of consumers that can spend more than $20 a day, so they might not buy high-end luxury brands, but still a consumer.
Speaker: It's one of the fastest rising markets around the planet.
Speaker: So there is tremendous opportunity, and that's simply because you've got
Speaker: close to 200 million people, well by that time over 200 million people, that are in the lower income or lower middle income brackets and that creates a big market.
Speaker: But it wouldn't be for the luxury products necessarily, it would probably be for, yeah, staples, a bit what we've seen in India, Indonesia, right?
Speaker: People go after staple products first and later on discretionary spending motorcycles, cars, and into travel and these sort of things.
Speaker: I remember when we were looking at these consumer markets in Asia, it was very surprising for me to see Bangladesh in there and it potentially overtaking even UK to be a bigger consumer market in terms of number of people.
Speaker: Yeah, no, absolutely.
Speaker: I was surprised as well.
Speaker: So we have a good economy.
Speaker: We have an emerging consumer market that irrespective of policies probably will continue to grow, right?
Speaker: That's demographics.
Speaker: You can't change these things very easily.
Speaker: But how does the equity market look like?
Speaker: I would say in terms of equity market, the story is a bit mixed and that you would expect out of any frontier market or a small or growing market.
Speaker: The stock market is still small.
Speaker: It's a bit concentrated.
Speaker: Top five stocks, they form up to 60% of the market cap.
Speaker: The index is dominated by telecom companies and healthcare companies.
Speaker: So they're kind of domestic oriented.
Speaker: The domestic, it's not as liquid, but that was exactly the case with Vietnam, say six, seven years back or with India 20 years back.
Speaker: So the market is small, but we see some really strong earnings growth coming out of this market.
Speaker: But there are also some technical issues at play that are not so good.
Speaker: There are.
Speaker: The local regulator, that is Bangladesh Securities and Exchange Commission, has recently introduced something which is called floor prices on security.
Speaker: What exactly is this floor price?
Speaker: So we've heard about circuits.
Speaker: There are a lot of securities where these upper or lower circuits are often applied.
Speaker: Yeah, you mean if, for example, the stock market drops in any market in the US, I think, or other markets, they say, hey, let's take a pause, right?
Speaker: So they suspend the trading.
Speaker: And then we go back again, let everybody cool down for a moment.
Speaker: That's right.
Speaker: But in Bangladesh, it works a bit differently.
Speaker: To give you a bit of the background, this float price was first introduced in 2020, then they removed it.
Speaker: It was then again reintroduced in 2022, removed it.
Speaker: Again, this year they have put this floor price on more than 150 securities in Bangladesh.
Speaker: So there is a pre-decided price below which the security cannot be traded by market participants.
Speaker: Let's say there is a security X.
Speaker: So if the price falls below a particular pre-decided level, it remains, it doesn't get suspended, but the market participants just cannot buy it.
Speaker: So it impacts the liquidity of the market.
Speaker: It gets very difficult for the participants to discover the right price for that security.
Speaker: And we've seen the liquidity of Bangladesh securities come down a lot because of this in last three, four years.
Speaker: So this is something like, you know, the regulators need to look at if they want foreign investors to come into the market.
Speaker: It has to be at par with other global markets when it comes to the regulation or the freedom with which securities operate.
Speaker: Fantastic.
Speaker: We're going to take a quick break now.
Speaker: When we come back, we'll take a look at the challenges facing the Bangladesh economy.
Speaker: So, Pruna, we've looked at Bangladesh and it seems it's a fairly compelling story from kind of the top down, right?
Speaker: As you highlighted, the economy is growing very well.
Speaker: Income levels are higher than India.
Speaker: That's a nice one.
Speaker: It's still a very young kind of country.
Speaker: The demographics look good.
Speaker: Investments are coming in.
Speaker: It looks like a lot of things are going for them, but there must be a few challenges as well, right?
Speaker: Yes, there are challenges.
Speaker: And I think that's there with a lot of growing economies.
Speaker: One of the few issues that Bangladesh is facing right now is it's very common for households and companies to face hours of power cuts in Bangladesh.
Speaker: So they are dealing with these power shortages.
Speaker: The economy really went down in last two years when the gas prices globally had increased a lot.
Speaker: And that's when IMF had to come to rescue the economy to give them some loans.
Speaker: But at the same time, IMF wants the government to come out with a lot of reforms that could improve the situation at macro level when it comes to tax collections, when it comes to free trading of their FX currency.
Speaker: So yes, on macro front, there are a few reforms that are required for the economy to grow with its potential.
Speaker: Yeah, but we can also argue that a lot of these things, if they continue to be addressed properly, Vietnam had this as well.
Speaker: And now everybody is coming into Vietnam in big ways because it's one of these emerging countries that people want to have exposure to.
Speaker: And it might well be that Bangladesh is going to be kind of the next Vietnam.
Speaker: And what I would suggest, Pran, that in about 10 years time, by 2030, you and I sit down again.
Speaker: Hopefully we still have the Under the Banyan Tree podcast still running by then.
Speaker: And see if our prediction made here today was the correct one.
Speaker: I'm hopeful that Bangladesh will appear as one of the strongest markets even in 10 years to come.
Speaker: I think so too.
Speaker: And on that note, we're going to have to wrap up today's podcast.
Speaker: Thanks, as always, for joining us.
Speaker: And be sure to listen to next week's podcast, because that's a rather special one.
Speaker: We will be bringing our first ever live Under the Banyan Tree, recorded here in front of a live audience at our Asian headquarters in Hong Kong.
Speaker: My regular co-host, Fred Newman, will be back for that one and also be joined by colleagues from the tech sector, property and economics.
Speaker: So long, I'll talk to you again soon.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
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