Deutsche launches Bangladeshi access platform
By Nick Ferguson | 1 February 2008
New suite of derivatives products give investors exposure to Dhaka's stock market.
( A note to NRBs: All the NRBs around the world should take advantage of this developing oppoturnities so international banks increasingly focuses on BD market and also, develops new innovative financial instruments to invest in Bangladesh)
Bangladesh is one of the poorest countries in the world, but smart investors have
quietly been making money there for the past few years on the back of strong economic
growth and a booming stock market.
The growing level of interest has prompted equity derivatives desks at the big
investment banks to start offering hassle-free ways for investors to buy into the
Dhaka stock exchange. Deutsche Bank yesterday launched an institutional platform,
aXess Bangladesh, and Citi started offering such access trades last May.
Investors who bought the index at the start of 2007 pocketed an 87% return by the
end of the year, compared to a 38% return on the MSCI Asia ex-Japan index. Just
four years ago the Dhaka stock exchange was worth only $1.7 billion and daily turnover
was barely $1 million. Today, the market is worth $10.6 billion and turns over almost
$20 million a day – still tiny, but growing fast.
"Bangladesh offers an exciting alternative to other high-growth Asian markets," says Ben
Chandler, Deutsche's head of synthetic equity sales in Asia, who adds that the exchange
is modern and fully automated. "It provides an efficient market for foreign investors."
And a friendly one too. Bangladesh is more open to foreign investors than many of its
neighbours, with full foreign ownership allowed in most industries and no capital gains
tax.
The economy grew 9.3% in 2007 and has averaged growth of 7.3% during the past five years,
thanks largely to the success of the country's garment industry. For that growth to continue
Bangladesh needs to build better transport links and more power stations, and to fund that
investment it needs to attract overseas investors into its stock market.
Access products such as the ones launched by Deutsche yesterday will make it easier for
those funds to flow into the country. Using equity derivatives structures – participatory
notes, zero-strike warrants, total return swaps and so on – investors can get a synthetic
exposure to stocks on the Dhaka exchange or the index itself.
These types of products are not particularly risky in themselves, but Bangladesh is still
a dicey place to invest. Liquidity is thin, the market is small and the economy is heavily
reliant on agriculture. Like most indices in the region, Dhaka has traded down in January
and during 2007 it was very closely correlated to other markets in Asia, but Deutsche
strategists say the market is still worth a look, particularly for small-cap investors and
those in the private equity and infrastructure sectors.
Copyright FinanceAsia.com Ltd., a subsidiary of Haymarket Media Ltd
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