Potential Gains From Emerging Stock Market of

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POTENTIAL GAINS FROM EMERGING STOCK MARKET OF

BANGLADESH: FACTS & FIGURES FOR FOREIGN INVESTORS
Mazhar M. Islam, Texas A&M International University
ABSTRACT
The explosive growth of the stock market in Bangladesh over the

past few years until the middle of November 1996 has also been
the result of a combination of the government economic reforms
and political stability. The fiscal measures, efforts to
financial & capital market reforms coupled with the improvement
in economic indicators, and a stable political climate
contributed to a dramatic increase in foreign and domestic
investment. However, the abnormal market activities in the later
half of 1996 and its subsequent crash in November of 1996 were
mainly due to "speculative bubble" based on rumors & dishonest
trading activities. To international investors, it is important
to understand what has happened and why it happened? In addition
to government's inability to monitor the market carefully and
subsequently to take the appropriate policy actions, this crash
also indicates the investors' inability to isolate the market
price of a share from its intrinsic value. Although the market
grew fairly rapidly in Bangladesh, nonetheless, the size of the
market was very thin compared to the sizes of other emerging
markets in terms of market capitalization and trading volume.
Liquidity and settlement remain difficult. Regulatory devices
being improved, but the process is slow and inadequate. Research
has also increased in the past few years, but given the limited
track records of the most of the companies and poor disclosure,
research sophistication is also behind the other emerging markets
in the region. The development of a National Market System (that
includes centralized reporting of all transaction, centralized
quoting system, centralized limit order book, and competition
among all qualified market makers) has been advocated by
financial institutions because it is expected to provide greater
efficiency, competition, and lower cost of transactions.
Management of the exchanges should he separated from the
ownership in order to avoid unethical transaction.
I. INTRODUCTION
World equity markets are booming, and the growth and

globalization of emerging [1] stock markets are impressive. Over
the past decade, world stock market capitalization rose from $4.7
trillion to $15.2 trillion, and the emerging market
capitalization rose from less than 4% to 13% of total world
capitalization. In 1994, the emerging market capitalization was
$1.9 trillion, compared to $0.2 trillion in 1985. Moreover,
emerging markets have become more integrated with world equity
markets [2]. International investors have noticed and
participated in this rapid growth of emerging stock markets. As
a result, portfolio flows of equity investment to emerging
markets jumped to $39 billion in 1995 from a mere $0.1 billion in
1985 [3]. These rapid developments of emerging stock markets
have attracted the attention of academics, practitioners, and
policy makers. Several studies focus on measuring the benefits
of holding an internationally diversified portfolio [4]. Recent
studies have focused on the gains in investing in a globally
diversified portfolio and the benefits for countries of removing
http://www.sbaer.uca.edu/research/1998/SRIBR/98sri321.txt 5/7/2004
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barriers to international capital flows [5]. The growing

interest of investors in foreign securities is a reflection of
the growing investors awareness of the benefits of international
diversification. Investors are interested in investment
opportunities in foreign equities mainly for two reasons:
(1) some foreign markets may offer higher rates of returns than
domestic markets, (2) for diversification gain in order to reduce
portfolio risks. The growth and the popularity of the emerging
stock markets in developing countries is explained by a number of
factors. Perhaps the main reason for the growth is the sweeping
economic reforms that have been carried out in some of the
countries [6]. The rapid growth of the Newly Industrializing
Countries (NICs) of Asia and Latin America has persuaded other
developing nations that foreign investment is the quickest route
to economic prosperity. In the aftermath of the debt crisis of
the 1980s, direct and portfolio investments have become the most
important alternative forms of development financing to countries
which in previous decades relied heavily on borrowing from public
sector [7]. On the policy front, many countries have reformed
their laws and regulations and removed capital controls and other
barriers to attract foreign portfolio investments. Bangladesh
also has sought to attract foreign investment through the use of
investment incentives package. The government has offered some
of the most liberal conditions for foreign trade and investment.
Most such incentives include tax relief, direct subsidies, tariff
protection, credit assistance, foreign equity participation up to
100 percent, currency convertibility, and other inducements.
Statistics indicate that these measures have been effective in a
laser extent in attracting foreign investments in Bangladesh
compared to other East and Southeast Asian nations. Investment
in stock market of Bangladesh seems to be much impressive as well
as volatile over the past several years. Some emerging stock
markets can be found in countries with low GNP per capita,
however, their stock market have begun a process of change:
growing in size, turnover, and exchanges are being developed.
They can be defined as "emerging stock markets". Because their
levels of economic development are below of IFC definition of
emerging countries. Bangladesh stock market can be classified to
that category [8].
In order to avoid any substantial loss and to obtain

diversification benefits, it is imperative to investigate the
major characteristics of the "emerging stock market" of
Bangladesh by examining the quantitative and qualitative changes
of the market. Moreover, it is also important to know how this
market is responding to economic indicators and changes in
government policies. The major objectives of this study are
therefore:
--to provide a summary of Bangladesh economic performance relating

it to the security analysis,
--to examine the stock market in Bangladesh by investigating it's

history & the growth, regulatory framework, participants in the
share market, internationalization of domestic shares, volume of
the market activities, behavior of the price and quotation index,
market capitalization, trading volume, price/earnings ratios, the
exchange structure, stock issuing companies and market
surveillance.
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--to examine the importance and the process of security analysis

from the investors point of view,
--to compare the performance of Bangladesh share market with other

southeast Asian equity markets and finally,
--to summarize the problems and prospects of the stock market in

Bangladesh.
In order to achieve these objectives this study is organized as

follows: Following the Introduction, the Section II discusses
the trends in Bangladesh economy with an overview of capital
market. Section III discusses the growth and trend of stock
market in Bangladesh, while section IV discusses the government
efforts for a stronger security market. Section V examines the
Stock market organization while the regulatory framework is
discussed in section VI. In order to familiarize the small and
individual investors how to evaluate the prospective shares,
section VII discusses the importance and the process of stock
market analysis. Section VIII provides information on foreign
portfolio investment in Bangladesh, while section IX compares the
performance of Bangladesh stock market with some other emerging
markets in Asia. The last section X summarizes the study with
conclusions and policy prescriptions.
DATA SOURCES & METHODOLOGY:
Data on different variables of the share market are collected

from the Security and Exchange Commission (SEC) of Bangladesh,
Dhaka Stock Exchange (DSE), and Chittagong Stock Exchange (CSE).
Statistics on major economic indicators are collected from
various publications of the World Bank, IMF and Bangladesh Bank
[9]. Descriptive statistics are applied to discuss the findings.
All statistical results are provided in tables, graphs and charts [10].
II. TRENDS IN BANGLADESH ECONOMY
Twenty-five years after independence, Bangladesh still remains a

poor, overpopulated, rural country with a weak industrial base;
yet many analysts see hope for its future. Population growth is
about 2.5% per annum and the literacy rate is less than 40%.
Agriculture supports almost 60% of the population and provides
40% of national income, while manufacturing contributes less than
10% and the tertiary sector is about 45%. Agricultural
production has risen steadily over the past few years, despite
the vagaries of a semi-tropical monsoon climate. Although output
in the domestic industrial sector lagged, the country's export-
driven business has performed well particularly garments, leather
goods, ceramics, and frozen foods. However, the creation of more
jobs at a more rapid pace is essential; some estimates suggest
that the unemployment rate could be as high as 30%. Much of the
industrial, banking and other financial sectors have been
nationalized, and key sectors of the economy are still dominated
by government. Significant achievements in population, food
production, and stabilization of the macro economy have not been
accompanied by the faster economic growth and employment
generation needed to alleviate massive poverty and raising
economic growth to a sustainable level. The main problem is that
economic growth, running at less than 5% in recent years, is too
slow to generate adequate resources to the future. However, In
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order to reach the target growth rate of more than 6%, the
country needs sweeping economic reforms, particularly to boost
investment above its current level. The economy of Bangladesh is
still characterized by a very low domestic savings rate and a
huge trade deficit. Savings as a percentage of GDP remain low at
less than 8%. The government and development agencies monitoring
Bangladesh, led by the World Bank, regard the lack of investment
as the country's most important economic problem. The World Bank
estimates a ratio of 18-20% is necessary to lift Bangladesh into
a higher level of economic activity. Without a substantial
amount of foreign investment, domestic private investment will be
inadequate to achieve this objective. Consequently external
assistance continues to play an important role in providing
budgetary and balance of payments support.
The past several years have seen Bangladesh rigorously

implementing a policy package of macroeconomic reforms. An
integral part of that package includes reforms of the financial
sector encompassing money and capital markets. The past
democratic government has paid special attention to activate and
further develop the capital market, particularly its securities
segment in the hope of attracting large volumes of portfolio and
direct investment from domestic and foreign sources. The past
government has also embarked on a drive towards privatization,
deregulation, and the creation of private-sector
entrepreneurship. Much progress has been made in terms of the
tax & tariff structure, exchange-control regulations and the
creation of a more open economy. Major economic indicators show
that the government effort has succeeded creating a degree of
economic stability. Inflation rate has been much lower than the
last decade. The fiscal authorities managed to bring down the
budget deficit to GDP ratio. The costs of borrowed money
(interest rates) were much lower compared to previous years.
Trade balance showed healthy sign, and the country's external
debt has declined because of increased internal resource through
value-added-tax (VAT). As a result value of domestic currency
was relatively stable [See Table 1 and Graphs 1, 2, & 3].
III. GROWTH AND TREND OF SECURITIES MARKET IN BANGLADESH
The origin of stock market in Dhaka goes back to 1954 when a

Stock Exchange was formed in Narayanganj. Later in 1958 the
stock exchange was transferred to Dhaka. The Companies Act, 1953
and the Capital issues (Continuance of Control) Act, 1954 were
two pieces of legislation governing the stock market in the
country. Later, the Securities and Exchange Ordinance was
promulgated in 1969. This ordinance required the companies to
take permission from the Controller of Capital Issues (CCI) for
issuing capital and making public offer of securities. It also
required the companies to submit annual reports and to provide
information as required. In addition, this ordinance required
the stock exchange to take registration from the CCI. However,
the stock market in the independent Bangladesh began its journey
in 1976 with only 9 companies. The nationalization of the major
local companies after independence left little scope for the
development of the stock market at that time. The number of
listed securities grew at a slower rate during the period 1976
through 1982. At the end of 1982, the number of listed companies
was only 29. But the growth in the number of listed companies
was relatively higher during the period 1983 through 1988. After
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1988, the growth in number of listed securities slowed down

somewhat because of the political turmoil. The past democratic
government has paid special attention to activate and further
develop the capital market, particularly its securities segment
in the hope of attracting large volumes of portfolio and direct
investment from domestic and foreign sources. As a result by the
end of 1993, the number of listed securities stood at 153. A
good number of new public issues were made during 1994 and the
number of listed securities increased to 161,188 by the end of
1994 and 1995. By the end of June 1996 it has increased to 201
[See Tables 2.A, 2.B, 2.C, & 2.D and Graphs 4, & 5].
The growth in market capitalization was relatively slow from 1976

through 1982. By the end of 1982, the market capitalization
stood at Taka 812 million. The new issue of securities and the
growth of market capitalization gained some momentum after 1983.
The year 1987 experienced a relatively big rise in market
capitalization with 92 listed companies. The rise of market
capitalization in 1987 has been attributed partially to the
overreaction in the market. While the price earning ratio in
1986 was only 6.8, it jumped to 20.6 in 1987 and to 23.9 in 1989
(IFC, 1994). The major breakthrough took place in the 1990s.
Reforms in the financial sector were undertaken to bring
discipline in the financial market. Banks were allowed to set
their own lending interest rate. The bank rate was reduced
substantially. Loans from the financial institutions were no
longer available at a subsidized rate of interest. This has
reduced the preference of borrowed capital to equity by the
entrepreneurs. The period from 1992 through 1995 was remarkable
for the stock market in Bangladesh which experienced a
significant growth in terms of market capitalization, transaction
volume and number of new issues [See Tables 3, 3.A, 3.B, 4, 5 &
5.A, and Graphs 6 & 7].
The increase in the volume of transactions is not merely due to

the increase in market capitalization, but also due to a
significant increase in the depth and breadth of the market
activities. This significant growth of the stock market in
Bangladesh can be attributed to the following major factors.
First, the liberalization in the foreign exchange policy and
currency convertibility made the way for foreign portfolio
investment giving a large boost to the demand side. It has been
estimated that a total of taka 6800 million has been invested by
the foreign portfolio investors in the Bangladesh stock market by
the end of 1994. Second, the monitoring of the companies and
stock exchange by the Securities and Exchange Commission ( SEC)
restored investors' confidence in the market. Third, the
willingness of potential companies to make public issue and
relatively relaxed policy of pricing initial public issues gave
boost to new issues in the market. Fourth, satisfactory
macroeconomic performance. Fifth, the political stability.
IV. GOVERNMENT EFFORT FOR STRONGER SECURITIES MARKET
The past several years have seen Bangladesh rigorously

implementing a policy package of macroeconomic reforms. An
integral part of that package includes reforms of the financial
sector encompassing money and capital markets. The government
has paid special attention to activate and further develop the
capital market, particularly its securities segment, which
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remained dormant for long, in the hope of attracting large

volumes of portfolio investment from domestic and foreign sources
alike. To generate investors' confidence and protect the
interest of investors in securities the SEC was established in
June, 1993. Since its creation, SEC has been working to develop
a sound operational system [11]. On the demand side, the
government has abolished capital gains tax on sales on shares and
debentures of listed companies. Dividends declared by listed
companies are also exempt from income tax up to taka 30,000 and
stamp duty is not charged on the transfer of securities of listed
companies. These followed a large divestment program of state
owned enterprises, establishment of the ICB and other fiscal
measures. On the supply side, the past government has reduced
the corporate tax rate for public listed companies from 40 to 35
percent. This is intended to encourage more companies to list
their shares in the exchange. In addition, the government has
required the public companies with a paid up capital of taka 10
million or more be listed on the exchange. The government also
intends to promote foreign investments in securities.
Government's policy of privatization has also been helpful in
increasing the market capitalization [12].
The Government took a number of measures to encourage foreign and

domestic investors to invest in the securities market. These
measures include:
* free repatriation of capital and fully abolishing capital gains

tax;
* convertibility of taka on current account;
* withdrawal of all regulatory restrictions on international
portfolio investors for investing in the secondary securities
market;
* withdrawal of ceiling on holding of international portfolio
investors;
* fixing of quota for private placement to foreign investors to
the extent of one-third of IPO and right issue subject to a lock-
in period of the year;
* underwriting by foreign investors up to one-third of IPO and
right issue;
* allowing foreign investors to participate in IPO and right
issue without any regulatory restrictions;
* withholding tax on dividends at 10% for individual and 15% for
companies. In case of individuals, no tax is withhold if
dividend does not exceed Tk. 10,000;
* exemption of dividend income up to Tk. 30,000 from tax; and
* a gradual decline in bank rate resulting in fall in interest
rate on bank deposits which is acting as an incentive to invest
in securities market.
V. MARKET ORGANIZATION
Dhaka Stock Exchange
The Dhaka Stock Exchange (DSE) is a front line organization for

the securities market envelopment in Bangladesh. The DSE, a non-
profit-making Company, was originally incorporated in 1954, then
had its trading activities suspended in 1971 as a result of the
economic policy of the then Government. Trading was resumed in
1976. The exchange has undergone a major growth in 1986, 1987
and during the periods of 1990-92. The growth was attributed to
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government privatization policy, liberalization of industrial

policy and speculation. After a period of steady growth
beginning in 1986, transaction in shares has plummeted since 1986
to 1992. After opening of the market for the foreign investors
in 1992, the trading in the DSE has been booming in recent months
and increasing day by day. Trading is carried out using a call-
out system where a Stock Exchange official calls the name of
individual stocks in sequence, and bids and offers are made. An
agreed contract is noted down by a DSE official, and a contract
note called a Howla is prepared in triplicate-two going to the
contracting parties and one retained by the Exchange. At
present, there are 203 companies listed on the DSE. Textile
companies make up the largest sector, accounting for more than
one third of the total turnover [See Table 6.A].
Chittagong Stock Exchange:
The SEC approved the establishment of the second stock exchange

of the country, Chittagong Stock Exchange (CSE) in February,
1995. The Commission issued the Certificate of Registration to
CSE in February, 1995. CSE consists of 70 members representing
profession, trade, commerce and industry of Chittagong. It is
managed by a Board of Directors, comprising of 12 elected
directors and 6 directors to be nominated by the Commission. CSE
was incorporated as a public company under the Company Act, 1994
on 1 April, 1995 [See Table 6.B].
As on 7th August, 1996 there were 203 and 74 listed securities

with DSE and CSE, respectively. The listed securities comprise
shares of 185 companies, 7 mutual funds and 11 debentures in DSE.
In CSE, total number of share issues is 67 and 7 mutual funds.
The total market capitalization of securities was about dollar
1813.63 million on 7th August in DSE alone. The secondary
securities market witnessed exceedingly high activities after the
election of June 1996 and continued till a major crash in the
market in the end of 1996 [See Tables 7.A through 7.K].
THE SECURITIES MARKET INSTRUMENTS
The government securities include treasure bills for financing

the Government borrowing and saving certificates issued by the
National Saving Directorate. The Saving Certificates include 8-year
Defense Saving Certificate, 7-year Bonus Certificate, 5-year
Bangladesh Saving Certificate, Wage Earners Bonds and National
Investment Bond. The Government is also involved in issuing
debenture of State Owned Corporations. Investment Corporation
Board (ICB) is involved in selling unit certificates and floated
7 mutual funds. The ICB also operates 36,090 investors account
who invest in the securities market through ICB. In addition to
the equity market, debentures, convertible debentures and mutual
funds are traded at the Exchange. More sophisticated instruments
such as warrants are not in use. Private sector securities in
Bangladesh comprises ordinary share and debentures issued and
traded in DSE and CSE. Private sector securities comprises
ordinary shares and debentures issued and traded in the two
exchanges.
VI. REGULATORY FRAMEWORK: SECURITIES AND EXCHANGE COMMISSION
In order to protect the interest of investors in securities, and
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to develop a viable securities market the Securities and Exchange

Commission (SEC) was established on 8th June of 1993 under the
Securities and Exchange Commission Act. Consistent with overall
policies, SEC is supposed to act as a central regulatory agency
performing wide range of functions covering the entire capital
market including the proper issue of capital, the establishment
of fair trading practices and the close supervision of issuers,
markets and intermediaries.
The Board of SEC is the policy-making and oversight body, while

the implementation and day to day regulatory functions are taken
care of by the full-time Chairman and members. SEC, in its day
to day regulatory functions, is guided by the following laws:
i. Company Act, 1994;

ii. Securities and Exchange Ordinance, 1969 as amended in 1993;
iii. Securities and Exchange Rules, 1987;
iv. Securities and Exchange Commission Act, 1993;
v. Securities and Exchange Commission (Stock-dealer, Stock-
broker and Sub-broker) Regulations, 1994 as amended in 1995;
vi. Securities and Exchange Commission (Appeal) Regulations,
1995;
vii. Guidelines on Initial Public Offing to Local Investors;
viii. Guidelines on Foreign Placement or Allotment of
Securities;
ix. Guidelines on Issuance of Right Shares; and
x. Guidelines for Raising of Capital by Greenfield Public
Companies.
In addition to these laws, the SEC is supposed to be guided by

International Accounting Standard (IAS) and International
Accounting Standards of Auditing (ISA) issued by the
International Accounting Standards Committee and International
Auditing Practices Committee of International Federation of
Accountants respectively; and notifications issued by SEC and the
erstwhile Controller of Capital Issues under the Capital Issues
(Continuance of Control) Act, 1947 and the Securities and
Exchange Ordnance, 1969. The Commission is responsible for
monitoring the activities of Dhaka and Chittagong Stock
Exchanges, Merchant Bankers, Portfolio Managers, Mutual Funds,
Stock-Brokers/Dealers, Issues and all other intermediaries as
well as institutions operating in and for the securities market.
CONSTITUTION OF COMMISSION
SEC is composed of five members: Chairman, 2 full time members

and 2 other members nominated by the Ministry of Finance and the
Bangladesh Bank. The Chairman and two full time members are
appointed by the President on the recommendation of the Ministry
of Finance. The Chairman and two full time members hold office
for a term of three years and are eligible for reappointment for
a similar term provided their age do not exceed 65 years. There
are no statutory qualifications for Chairman and other full time
members. Commission members are chosen having regard to their
qualification, experience and skill in company matters and
securities markets [See Chart 1].
OBJECTIVES
The broad objectives of the Commission are:
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1. protection of interest of investors in securities;

2. regulation and development of securities markets;
3. ensure proper issuance of securities.
FUNCTIONS
The Commission's main functions include:
1. regulating the business of stock exchanges or any other

securities market.
2. registering and regulating the business of stock-brokers,
sub-brokers, share transfer agents, bankers and managers to
issues, trustees of trust deeds, registrar to an issue,
underwriters, portfolio managers, investment advisers and other
intermediaries in the securities market;
3. registering, regulating and monitoring of collective
investment schemes including all forms of mutual funds;
4. promoting, monitoring and regulating all authorized self
regulatory organizations in the securities market;
5. prohibiting fraudulent and unfair trade practices relating to
securities or in any securities markets;
6. promoting investors' education and training of all
intermediaries of securities market;
7. Prohibiting insider trading in securities;
8. regulating substantial acquisition of shares or stocks and
take-over of companies;
9. calling for information for undertaking investigation and
inspection, conducting inquires and audit of any issuer or dealer
of securities, the stock exchanges and intermediaries and any
self regulatory organizations in the securities markets;
10. compiling, analyzing and publishing indices on the financial
performance of any issuer of securities;
11. conducting research and publishing information for the above
purposes.
Thus, the work and strategies of the Commission are to protect

investors, foster investors' confidence, promote a healthy,
active and properly administered securities market, facilitate
capital formation and inhibit fraud in the public offering of
securities.
MAKING OF REGULATION
The Commission, with prior approval of the Government, made the

following regulations:
i. Stock-Dealer, Stock-Broker and Sub-Broker Amendment

Regulations; and
ii. Appeal Regulations.
The Commission also developed, after consultation with all

concerned, the following regulation:
iii. Insider Trading Regulations;

iv. Merchant Banker and Portfolio Manager Regulations; and
iv. Mutual Fund Regulations.
These regulations were approved by the Ministry of Finance; and

awaiting for voting by the Ministry of Law.
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ISSUANCE OF GUIDELINES
In order to ensure proper issuance of securities by public

companies, the Commission has issued four guidelines on:
i. Initial Public Offering (IPO) to Local Investors;

ii. Foreign Placement or Allotment of Securities;
iii. Issuance of Right Shares; and
iv. Sanction of Issue of Capital by Greenfield Public Companies.
The Commission also clarified one year lock-in policy with regard
to foreign placement or allotment of IPO or right shares.
In addition, the Commission issued Code of Ethics and Guideline

for Employees of SEC and Stock Exchanges. These code and
guidelines have already been implemented by SEC and stock
exchanges.
MONITORING AND SUPERVISION
The Commission monitored compliance of laws by public listed

companies, stock exchanges and stock-brokers/dealers. Among
others [13], the Commission monitored whether-
* annual general meetings (AGMs) were held on time by public

listed companies;
* declared dividends were paid on time by public listed
companies;
* refunds made and allotment letters issued against IPO on time
by public listed companies;
* share certificates were issued on time by public listed
companies;
* funds raised by IPO or right share were utilized by public
listed companies as per financial and physical plans approved by
the Commission;
* half-yearly accounts were issued by public listed companies on
time;
* financial statements complied with the disclosure requirements
prescribed by law;
* there were unusual fluctuations in the stock prices without
known reasons;
* right shares were issued by public listed companies complying
with the prescribed requirements; and
* interest on, and principal of, debentures were paid by public
listed companies as per terms of debenture.
VII. IMPORTANCE AND THE PROCESS OF STOCK MARKET ANALYSIS:
Stock market analysis consists of gathering information,

organizing it into a logical framework, and then using the
information to determine the intrinsic value of a stock.
Intrinsic value is the underlying or inherent value of a share.
This intrinsic value provides a measure of the underlying worth
of a share. It provides a standard for helping an investor how
to judge whether a particular stock is under valued, fairly
priced, or overvalued. A satisfactory share is the one that
offers a level of expected return that is commensurate with the
amount of risk involved. So security analysis addresses the
question of what to buy by determining what a stock ought to be
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worth. Eventually, intrinsic value of the share depends on
(1) estimates of the share's future cash flows (the dividend and
the capital gain or loss);
(2) the discount rate used to translate these future cash flows
into a present value; and
(3) the amount of risk involved in achieving the expected rate of
return.
Thus, the share market analysis takes a "top-down" approach:

It begins with economic analysis, then moves down to industry
analysis, and finally to fundamental analysis.
1. ECONOMIC ANALYSIS
Economic analysis is concerned with assessing the general

economic conditions and its potential effects on stock returns.
It is important that an investor not only has a grasp of the
underlying nature of the economic environment, but that he or she
also be able to assess the current state of the economy and
future expectations about its performance. Economic analysis may
include a detailed examination of each sector of the economy, or
it may be done on a very informal basis. Regardless of how it is
performed, the purpose is always the same: to establish a sound
foundation for the valuation of a share. If the economy looks
strong, stocks should do well. The behavior of the economy is
captured in the business cycle, which reflects change in total
economic activity over time. Two widely followed measures of the
business cycle are gross domestic product (GDP) and industrial
production. Normally, GDP and the index of industrial production
move up and down with the business cycle.
Key Economic Factors
Several sectors of the economy are especially important because

of the impact they have on total economic activity. These
include:
I. Government fiscal policy:

i. Taxes
ii. Government spending
iii. Debt management
II. Monetary policy:

i. Money supply
ii. Interest rates
III. Other factors:

i. Inflation
ii. Consumer spending
iii. Business investments
iv. Foreign trade and foreign exchange rates
A strong economy exists when industrial production, corporate

profits, retail sales, and personal income are moving up and
unemployment is down. Thus, when conducting economic analysis,
an investor needs to keep an eye on fiscal and monetary policies,
consumer and business spending, and foreign trade for the
potential impact they have on the economy. At the same time, an
investor must be aware of the level of industrial production,
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corporate profits, retail sales, personal income, unemployment,

and inflation in order to assess the state of the business cycle.
To help keep track of the economy an investor should keep an eye

on the behavior of the following key economic variables.
-Gross domestic product

-Industrial production
-Leading indicators
-Personal income
-Retail sales
-Money supply
-Consumer prices
-Producer prices
-Employment
-Housing starts
Inflation can have devastating effects on a share price. In an

inflationary situation many companies may report higher profits,
but the quality of these earnings actually declines as profit
margins are squeezed and the purchasing power of the money
deteriorates. An investors should devote special attention to
this factor when they analyze the economy and its prospects.
Developing an Economic Outlook
Conducting an economic analysis involves studying fiscal and

monetary policies, inflationary expectations, consumer and
business spending, and the state of the business cycle. Often
investors do this on a fairly informal basis. Many rely on one
or more of the popular published sources as well as on periodic
reports from major brokerage houses to form their economic
judgments. Once investors have developed a general economic
outlook then they can use the information in one of two ways.
One approach is to construct an economic outlook and then
consider where it leads in terms of possible areas for further
analysis. A second way to use information about the economy is
to consider specific industries or companies and ask: how will
they be affected by expected developments in the economy?
Investors in the stock market tend to look into the future in
order to justify the purchase or sale of stock. If their
perception of the future is changing, stock prices will most
likely also be changing. Therefore, watching the course of stock
prices as well as the course of the general economy can make for
more accurate investment forecasting.
2. INDUSTRY ANALYSIS:
Industry analysis deals with the industry within which a

particular company operates, how the company stacks up to the
major competitors in the industry, and the general outlook for
that industry. The first step in industry analysis is to
establish the competitive position of a particular industry in
relation to others. The next step is to identify companies
within the industry that hold particular promise. This sets the
stage for a more thorough analysis of individually companies and
securities. Analyzing an industry means looking at such things
as the make up and basic characteristics of the industry, key
economic and operating variables that are important in defining
industry performance, and the outlook for the industry. The
Page 13 of 41
investor needs to keep an eye out for specific companies with

strong market positions should be favored over those with more
tentative positions. Normally, an investor can gain valuable
insight about an industry by seeking answers to these questions:
i. What is the nature of the industry?

ii. To what extent is the industry regulated?
iii. What role, if any, does labor play in the industry? How
important are labor unions?
iv. How important are technological developments?
v. Which economic forces are especially important to the
industry? Is demand for the industry's goods and services
related to key economic variables? If so, What is the outlook
for those variables? How important is foreign competition to the
health of the industry?
vi. What are the important financial and operating
considerations? Is there an adequate supply of labor, material,
and capital? What are the capital spending plans and needs of
the industry?
3. FUNDAMENTAL ANALYSIS
Fundamental analysis is the in-depth study of the financial

condition and operating results of a company. It is related to
the financial affairs of a business for the purpose of better
understanding the nature and operating characteristics of the
companies that issue the shares. Fundamental analysis rests on
the belief that the value of a share is influenced by the
performance of the company that issued the stock. If a company's
prospects look strong, investors would expect the market price of
its share to reflect that and be bid up. However, the value of a
share depends not only on the return it promises, but also on the
amount of its risk exposure. Fundamental analysis capture these
dimensions and incorporates them into the valuation process. It
begins with an historical analysis of the financial strength of a
company. Using the insights obtained, along with economic and
industry figures, an investor can then formulate expectations
about the future growth and profitability of a company.
In the historical phase of the analysis, the investor would study

the financial statements of the company in order to learn the
strengths and weaknesses of the company, identify any underlying
trends and developments, evaluate operating efficiencies, and
gain a general understanding of the nature and operating
characteristics of the company. The following factors should be
properly evaluated:
i. The competitive position of the company

ii. Its composition and growth in sales
iii. Profit margins and the dynamics of company earnings
iv. The composition and liquidity of corporate resource (the
company's asset mix)
v. The company's capital structure (its financing mix)
Financial Statements
Financial statements are a vital part of fundamental analysis,

since they enable investors to develop an opinion about the
operating results and financial condition of a company. There
are three types of financial statements that are used in
Page 14 of 41
fundamental analysis:
(I) a balance sheet,

(II) an income statement, and
(III) a statement of cash flows.
The first two statements are essential to carrying out fundamental

analysis (in particular, to compute many of the financial ratios).
The third statement--the cash flow report--is of critical importance
because it is used to assess the cash/liquidity position of the firm.
Normally company statements are prepared on a quarterly basis and again
at the end of each calendar year or fiscal year. Annual financial
statements must be fully verified by independent certified public
accountants (CPAs), filed with the Securities and Exchange
Commission, and distributed on a timely basis to all shareholders
in the form of annual reports. By themselves, corporate
financial statements are a most important source of information
to the investor; when used with financial ratios and in
fundamental analysis, they become even more powerful.
(I) The Balance Sheet
Balance sheet is a financial summary of a company's assets,

liabilities, and shareholders' equity. The assets represent the
resources of the company (the things the company owns), the
liabilities are its debts, and equity is the amount of
stockholders' capital in the firm [14].
(II) The Income statement
The income statement provides a financial statement of the

operating results of the company. It is simply a summary of the
amount of revenues generated over the period, the cost and
expenses incurred over the same period, and the company's profits [15].
(III) Statement of Cash Flows
The statement of cash flows provides a financial summary of a

company's cash flow and other events that caused changes in the
company's cash position [16]. Whereas profits are simply the
difference between revenues and the accounting costs that have
been charged against them, cash flow is the amount of money a
company takes in as a result of doing business.
KEY FINANCIAL RATIOS:
Key financial ratios are useful because they provide a different

perspective of the financial affairs of the company, particularly
regarding the balance sheet and income statement, and as such,
expand the information content of the company's financial
statements. Ratios lie at the very heart of company analysis.
Indeed, fundamental analysis as a system of information would be
incomplete without this key ingredient. The most significant
contribution of financial ratios is that they enable an investor
to assess the company's past and present financial condition and
operating results. Ratio analyses are actually simple. Selected
information is obtained from annual financial statements and used
to compute a set of ratios, the are then compared to historical
and industry standards to evaluate the financial condition and
operating results of the company. When historical standard (time
Page 15 of 41
series) are used, the company's ratios are compared and studied
from one year to the next. Industry standards, in contrast,
involve a comparison of a particular company's ratios to the
performance of other companies (cross-section) in the same line
of business. For it's only from a thorough understanding of a
company's past performance that an investor can be in a position
to forecast its future with some degree of accuracy.
Financial ratios can be divided into five groups:
(i) Liquidity;
(ii) Activity;
(iii) Leverage;
(iv) Profitability; and
(v) Market measures.
i. Liquidity:
Liquidity is concerned with the company's ability to meet its

day-to-day operating expenses and satisfy its short term
obligations when they are due. Of major concern is whether a
company has enough cash and other liquid assets on hand to
service its debt obligation and operating needs in prompt and
timely fashion. A general view of a company's liquidity position
can often be obtained from two simple measures: (i) A current
ratio (=current asset/current liabilities) and (ii) net working
capital (=current asset-current liabilities). High ratios
indicate stronger liquidity position of the company.
ii. Activity Ratios:
Activity ratios compare company sales to various asset categories

to measure how well the company is utilizing its assets. Three
of the most widely used activity ratios deal with (i) accounts
receivable turnover (=annual sales/accounts receivable), (ii)
inventory turnover (=annual sales/inventory), and (iii) total
asset turnover (=annual sales/total assets). The higher are
these ratios the better is the performance of the company.
iii. Leverage Measures:
Leverage deals with different types of financial ratios that

measure the amount of debt being used to support operations, and
the ability of the company to service its debt. There are two
widely used leverage ratios: (i) debt-equity ratio (=long term
debt/shareholders' equity), measures the amount of the debt being
used by the company; and (ii) times interest earned (=earnings
before interest and taxes/interest expense), assesses how well
the company can service its debt.
iv. Profitability Ratios:
Profitability is a relative measure of success of a business.

Each of the various profitability measures relates the returns
(profits) of a company to its sales, assets, or equity. There
are three widely used profitability measures: (i) net profit
margin (=net profit after taxes/total revenue), Return on Asset
(=net profit after taxes/total assets), and Return on Equity
(=net profit after taxes/shareholders' equity).
Page 16 of 41
v. Market Ratios:
There are a number of stock, or so-called market ratios that

convert key bits of information about a company to a per share
basis. They are used to assess the performance of a company for
stock valuation purpose. These ratios tell the investor exactly
what proportion of total profits, dividends, and equity is
allocated to each share of stock. Popular ratios include:
Earnings Per Share (=net profit after taxes-preferred
dividends/number of shares outstanding), Price Earnings ratio
(=market price of the share/EPS), Price-to-sales ratio (=market
price of the share/annual sales per share), Dividends per share
(=annual dividends paid to share holders/number of shares
outstanding), Dividend Yield (=dividend per share/market price of
the share), payout ratio (=dividend per share/earnings per
share), Book value per share (=shareholders' equity/number of
outstanding shares), and the price-to-book value ratio (=market
price of the share/book value per share).
Basically, there are two types of performance standards used in

the financial statement analysis: historical (time-series) and
industrial (cross-section) analyses. In the historical case,
various financial ratios and measures are run on a company for a
period of three to five years (or longer) in order to assess
trends in the company's operations and financial condition: that
is, are they improving or deteriorating, and where do the
company's strengths and weaknesses lie? Industry standards, in
contrast, enable the investor to compare the financial ratios of
the company with comparable firms, or the average performance of
the industry as a whole. Here, attention is centered on
determining the relative strength of the company with respect to
its competitors.
VIII. FOREIGN PORTFOLIO INVESTMENT
Foreign institutional investors (FIIs) started investing in the

Bangladesh Securities Market since the middle of the year 1992.
But till the middle of the year 1993, their entry confined to
occasional purchases of some selective shares from the secondary
market. Neither the market nor the economy could satisfy the
expectation of investors, and the result was a downward trend in
share prices. Beginning of 1993 stocks seemed to become a
cheaper investment alternative. Those investors who left the
market in the backdrop of long dull (Bear market) condition in
1989 to 1992, showed up again. Only from the middle of the 1993,
FIIs started investing in Bangladesh Securities Market [17].
With the experience the FIIs changed their techniques of
purchasing stocks. Initially, they used to depend on one or two
brokers for transactions on the floor of the DSE. Later they
found it easier to deal with a number of brokers of the DSE. In
1993, they purchased stocks from the secondary market. But since
1994 they opted for initial public offerings (IPOs) of shares.
They found IPOs less risky, also suitable for making a quick
capital gain. Prolong political stability, government economic
reforms along with the creation of SEC, FIIs entered in both the
secondary and primary markets. As a result domestic
institutional and individual investors got incentives. As a
consequence the country's stock market witnessed an unprecedented
boom (Bull market) in the years of 1993, 1994, and 1995. In
order to bring stability in the market, in January 1995, SEC
Page 17 of 41
formulated a guideline spelling out the terms and conditions for

the IPOs. In that guideline, along with other conditions for the
local investors, a condition for the FIIs was set. Under that
condition, the FIIs was to receive up to 30% maximum from an
issue in an IPO. The guideline also conditioned that FIIs
received stocks through IPOs must not sell them before the end of
one year ("lock in"). SEC argued that it was also necessary to
bring equity in stocks distribution from the IPOs. It stated
that when FIIs were to receive stocks on a preferential basis,
they were also to carry out some obligations. The present
government has abolished the "lock in" system in order to bring
more foreign capital into the country. Many views this as a
positive step to bringing back the confidence of the FII.
However, the unprecedented boom in the later half of 1996
resulted in a big crash in the middle of November of 1996 when
the market reached to an artificial peak point (over 3700
points). Since then the market is operating under less than 1500
points. Many argues that a sudden withdrawal from the market by
FIIs after realizing that the market reached its highest point is
responsible to the crash. If that is the case then without
further observation, the abolition of "lock-in" system by the
present administration was a wrong policy. FIIs' entry brought
new money to the market, but their exit through remittance of
incomes (including capital gains and dividends) drained the
market. Another major cause for this crash is the ignorance of
the small and individual investors regarding the true market
activities and trading procedures. The "speculative bubble"
created by spreading the rumors about the strong performance of
the companies and further increase in share prices (without
keeping consistency with their intrinsic values), eventually the
bubble burst with a negative prolonged impact on the market [18]
(See Tables 8.A through 8.E here].
Some stock market observers speculate there should be a strong

positive relationship between institutional trading and stock
price volatility because institutions trade in large blocks, and
it is argued that they tend to trade together. Empirical studies
have never supported this argument. In a capital market where
trading is dominated by institutions, the optimal environment is
one where all institutions are actively involved because they
provide liquidity for one another and for noninstitutional
investors.
IX. COMPARATIVE ANALYSIS WITH RESPECT TO OTHER

EMERGING SOUTH-EAST ASIAN MARKETS
Statistics shows that the stock market in Bangladesh has grown

enormously during the last few years. However, the size of the
market is very thin compared to the size of other Asian emerging
markets. The total market capitalization of DSE was US $1.049
billion in 1994 compared to US $127.515 billion in India, US$
12.263 billion in Pakistan, $191.778 billion in South Korea and
$199.276 billion in Malaysia. The Bangladesh stock market is
also small compared to the size of the economy. The market
capitalization in Bangladesh was only 4.07 percent of GDP in
1994, as against 25.77 percent in Pakistan, 24.03 percent in Sri
Lanka, 104.14 percent in Thailand and 294.56 percent in Malaysia
[See Tables 9.A through 9.E].
Two major features of the underdeveloped stock market in
Page 18 of 41
Bangladesh are less liquidity of the market and smaller size of

companies. Both of these two indicators improved significantly
in 1995, but did not reach the level of other emerging markets.
The turnover ratio, a measure of liquidity of the market, was
14.3 percent for Bangladesh in 1994, compared to 24.1 percent in
India, 26.9 percent in Pakistan, 60.9 percent in Thailand, 58.7
percent in Malaysia and 174.1 percent in South Korea. The
average size of companies in Bangladesh was only US $6 million at
the end of 1994 in terms of market capitalization. Bangladesh
ranked 77th by average size of companies among 82 stock markets
listed by IFC in 1994. The annual change in stock price index
was significant despite decline in price indexes in most of the
South Asian markets. The stock price index in Bangladesh rose by
115.8 percent in 1994. Bangladesh ranked fourth by the price
index among 68 countries. The price earning ratio in Bangladesh
was only 10.1 in 1994 compared to 17.6 in Sri Lanka, 23.3 in
Pakistan, 26.7 in India, 34.5 in Korea and 29 in Malaysia.
Because of relatively lower stock price, investments produce high
dividend yield on the Bangladesh stock market [See Tables 10.A & 10.B].
Although the securities market of Bangladesh made significant

progress over the last few years, nevertheless the market needs
serious attention to gain stability, transparency and maturity.
Many stock issues attained abnormally high price earning ratio
within a very short period. Many shares are heavily over-
subscribed and some of the stock appear to be selling well above
their intrinsic value for a short period because of the high
speculation about expected future earnings ("speculative
bubble"). The recent major crash in the market is an indication
of government inability of adopting viable policy and monitoring
the market activities carefully. These indicate that the
Bangladesh securities market appears to be in speculation stage.
If the investors can not correctly analyze the market as is
discussed earlier they might end up with substantial losses.
X. SUMMARY AND CONCLUDING REMARKS
Development of securities market is a precondition of the

government's strategy to develop the economy through private
sector. A strong securities market mobilizes internal and
external resources for faster economic growth, ensures efficient
allocation of resources and eventually generates economic
development. Diversification of portfolio and large supply of
securities are required to attain depth and breadth of the
market. In Bangladesh, the inadequate supply of securities is a
major constraint to the development of a capital market. As on
August 9 of 1996, the number of listed securities was 203,
however, about 72 percent of the market is represented by 5 major
industrial houses and 7 multinational companies. This implies
that the supply of securities is dominated by a few
entrepreneurs. This has been due to lack of supply of securities
by other public limited companies. Supply of securities can be
increased enormously if all profitable public and government-
owned companies float shares.
Inadequate supply of good quality securities is another major

impediments to the development of securities market. This has
been evident in the subscription rates of primary security issues
and responses from the investors. In the primary market, it has
been argued that most of the security issues were oversubscribed.
Page 19 of 41
Some of the IPOs were oversubscribed many times. These

oversubscription have been going on because of the fact that
individual investors either are misinformed or are lacking the
knowledge of analyzing the securities market. The abnormal
market activities in the later half of 1996 indicated the
investors inability to separate the market price of a share from
its intrinsic value. This intrinsic value provides a measure of
the underlying worth of a share. It provides a standard for
helping an investor how to judge whether a particular stock is
under valued, fairly priced, or overvalued. A satisfactory share
is the one that offers a level of expected return that is
commensurate with the amount of risk involved. So security
analysis addresses the question of what to buy by determining
what a stock ought to be worth. Eventually, intrinsic value of
the share depends on (1) estimates of the share's future cash
flows (the dividend and the capital gain or loss); (2) the
discount rate used to translate these future cash flows into a
present value; and (3) the amount of risk involved in achieving
the expected rate of return. Securities analysis usually takes a
"top-down" approach: It begins with economic analysis, then moves
down to industry analysis, and finally to fundamental analysis.
Many individual investors do not realize the importance and the
process of stock market analysis. As a result they are enable to
predict the intrinsic value of a security, and eventually involve
in huge loss. Historically each emerging market is volatile and
risky [19]. However, the case for diversification into emerging
markets originates from the high economic growth potential of
emerging markets, together with low correlation with other
developed markets. Under pressure from international investors,
emerging markets are becoming more efficient, providing more
rigorous research on companies, and progressively applying
stricter standard of market supervision.
It has been complained by many investors that true information on

the performance of companies selling shares are hard to get.
Transaction costs can be quiet high. Some restrictions on
foreign investment may apply. However, the trend is toward rapid
deregulation and liberalization. It is also argued that many
individual investors and most of the institutional investors do
not apply for public issues in the primary market, because of the
fact that there is little or no chance of getting allotment due
to inadequate supple of securities. Most of the institutional
investors believe that there has been a supply side problem with
regard to both quantity and quality of securities. Many of the
institutional investors have large volume of investible funds
which are mostly invested in fixed income securities due to
inadequate supply of tradable securities. In addition, reduction
of interest rates on fixed deposits and government sponsored
saving certificates will make tradable securities more
attractive. Furthermore, the entry of FIIs in the DSE & CSE has
opened up potential for large demand for securities. In view of
these, if adequate supply of good quality securities can not be
ensured, the efforts to develop the securities market may not
succeed. The recent crash in the stock market reflects this scenario.
Nevertheless the fact that Bangladesh, under a democratic

government, has an unexploited potential to develop its capital
market. The prospect of the market depends on further reforms
along with the economic prosperity and political stability.
Adequate fiscal incentives should be provided to the publicly
Page 20 of 41
traded companies against the disincentives of increased

administrative formalities, disclosure requirements and higher
cost of capital. The management of stock exchanges should be
separated from ownership in order to avoid unethical transaction.
The SEC should enact regulations to require that the executive
head of every stock exchange be a paid full time non-member
executive. The board of a stock exchange should be broad based
and well represented. Foreign auditing company should be hired
in order to properly audit the balance sheet and income
statements of the companies selling shares. The DSE and CSE
should computerize their facilities for proper record keeping and
for trading activities in order to attain efficiency &
transparency. Exchanges should have bigger physical facilities
and should be relocated to new premises. Facilities should be
created to train the stock brokers and to educate the small
investors. The development of a National Market System (NMS) can
be suggested because it is expected to provide greater
efficiency, competition, and lower cost of transactions. Four
major characteristics of NMS are (1) centralized reporting of all
transactions, (2) centralized quoting system, (3) centralized
limit-order book, and (4) competition among all qualified market
makers. Centralized reporting requires a composite tape to
report all transactions in a share regardless of where the
transaction took place. A centralized quotation system would
list the quotes for a given share from all market makers on the
national exchanges, the regional exchanges, and the over the
counter (OTC) market. A centralized limit-order book (CLOB)
would contain all limit orders from all exchanges and the CLOB
would be visible to everyone, and all market makers and traders
could fill orders on it. Market makers should always compete on
the OTC market because it forces the dealers to offer better bids
and ask, or they will not do any business. Several studies have
indicated that competition among a large number of dealers (as in
the OTC market) results in a smaller spread. Last but not least
important step is to apply harsh punishment against the dishonest
traders and administrators who are involved in unethical
business.
END NOTES
1. The International Finance Corporation (IFC), a member of the

World Bank Group, started to publish monthly Emerging Stock
Market Indexes, which allowed money managers to measure the
performance of their portfolios invested in developing countries.
The traditional criterion for ranking the state of development of
a country is its level of income, measured by GNP per capita.
Another criterion to label "emerging stock market" is whether the
stock market has begun a process of change, growing in size,
turnover, and sophistication. IFC has decided to follow these
two criteria to include countries in its emerging market
database. It uses the World Bank classification and defines as
emerging a country with a low or middle income. It calculates
market indexes only for those stock markets that have shown the
promise of becoming mature.
2. In 1994 the cut-off between developed countries and emerging

countries was a 1992 GNP per capita of $8,356. As of 1994, there
were more than 200 countries of significant size, and only 38 of
them were classified as developed. Many emerging economies have
a stock market that is still in an embryonic stage. In 1994 IFC
Page 21 of 41
calculated stock indexes for 26 emerging markets (3 are in

Africa, 5 in Europe, 7 in Latin America, 10 in Asia, and 1 in the
Middle East). However, the classification and coverage differ
slightly across the major emerging index. Although, emerging
countries have a share of 20% of the World GNP; their population
represent 85% of world population.
3. For further information, see Ash Demirgiic-Kunt and Ross

Levine, "Stock Markets, Corporate Finance, and Economic Growth:
An Overview". The World bank Economic Review. Vol. 10,
no. 2: pp. 223-239.
4. For example, see Harvey 1995 and De Santis 1993.
5. See, for example, The World Bank Economic Review, January 1995.
6. These reforms have included privatization of previously state

owned enterprises, liberalization of regulatory environment,
removal of barriers to trade and investment, tax incentives etc.
7. For example, Asian and Latin American NICs.
8. Statistical on stock market activities in Bangladesh supports

our this classification. Please see tables and graphs on the
growth of stock market in Bangladesh.
9. This research project has been financed by the American

Institute of Bangladesh Studies. The research Fellow collected
stock market data visiting various public and private
institutions in Bangladesh.
10. Because of page limitation full statistical results are not

provided here. However, other tables and graphs are available
from the author upon request.
11. For more discussion on SEC, see the section on regulatory framework.
12. Daily securities market index is being published through the

television and news on share price is published in the daily
newspaper. These measures have helped in enhancing public
awareness of the securities market.
13. If any delay occurred in complying with the laws; any funds
were misapplied; there were any inadequate or non-disclosure; or
there were any unusual fluctuations in stock prices without known
reasons, these had to be accounted for to the Commission. In case
any defaults occurred wilfully and deliberately, penalty was
imposed by the Commission on the defaulters. For further
discussion, see Securities and Exchange Commission, Annual Report
1994 through 1996.
14. A balance sheet may be thought of as a summary of the firm's

assets balanced against its debt and ownership positions at a
single point in time (on the last day of the calendar of fiscal
year, or at the end of the quarter).
15. Unlike the balance sheet, the income statement covers

activities that have occurred over the course of time, or for a
given operating period. Typically, this period extends no longer
than a fiscal or calendar year.
Page 22 of 41
16. The fact is, a company's reported earnings may have little
resemblance to the company's cash flow.
17. The oldest FII was the Smith New Court Far East, a British
Company based in Hong Kong.
18. It may be mentioned here that in August of 1996, I pointed

out in a seminar in Dhaka, arranged by American Institute of
Bangladesh Studies, about the potential danger of the trend of
artificial high price ("speculative bubble") and its negative
impact on the market. It could have been avoided it if proper &
timely actions had been taken by the administration as were
suggested by this study.
19. In U.S. dollar terms most markets have a volatility ranging

between 30% and 70%, compared to 15% for the U.S. market. The
figure can be even worse when measured in local currency.
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A case study of equity markets in India". The Journal of
Developing Areas 23: 125-138.
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Meier, J., 1994. "A Comparison of Emerging Markets Benchmarks,"

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Ministry of Finance, Government of the People's Republic of

Bangladesh, Securities and Exchange Rules, 1987, Dhaka (September 29, 1987).
Ministry of Law, Justice and Parliamentary Affairs, Bangladesh

Gazette, Companies Act, 1994, Dhaka (September 12, 1994).
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Gazette, Securities and Exchange Commission Ordinance. Dhaka (May 3, 1993).
Moldrich, D. and Jeyavarman, S. Capital Market Development--Sri

Lankan Experience, Paper Presented in the 10th SAFA Conference,
Dhaka, (march 21-22, 1995).
Morrow, Felicia. "Mexico". The World Emerging Stock Markets.

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Publishing Co. Chicago, Ill. 1993. 293-281.
Obstfeld, Maurice. 1994. "Risk-Taking, Global diversification,

and Growth." American economic Review, vol. 85, no. 5: 1310-1329.
Pai, T.V. Mohandas, Capital Market Development--Indian

Experience, Paper Presented in the 10th SAFA Conference, Dhaka,
March 21-22, 1995).
Park, K.K.H., and Van Agtmael, A.W., eds. The World Emerging
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southern cone, in M. Urruti (Ed.), Financial Liberalization and
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America, Tokyo: United Nations University.
Sargent, Sarah, "Securities markets, Privatization, Reforms".

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Solnik, Bruno. Chapter 8: Emerging Stock Market in

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World Bank, World Debt Tables and World Development Report, Various issues.
World Bank, The World Bank Economic Review, January 1995: Issues
on Stock Market.
==============================================================================
TABLES
==============================================================================
TABLE 1
SELECTED ECONOMIC INDICATORS
(1980-1995)
==============================================================================
Year GDP EXC. Intest. Export Import Trade Inf.
($b) rate rate (%) mill.$ mill.$ balance rate (%)
base 1990 mill.$
------------------------------------------------------------------------------
1980 32.3 15.5 10.50 739.2 -2352.8 -1559.6 13.41
1981 29.7 18.0 10.50 790.5 -2434.8 -1644.3 16.15
1982 24.3 22.2 10.50 768.4 -2221.1 -1452.7 12.52
1983 22.6 24.6 10.50 723.9 -1930.7 -1206.8 9.40
1984 22.9 25.4 10.50 931.7 -2340.0 -1408.3 10.54
1985 21.5 28.0 11.25 999.5 -2286.4 -1281.9 10.69
1986 20.7 30.4 10.75 880.0 -2300.7 -1420.7 11.0
1987 21.2 31.0 10.75 1076.9 -2445.6 -1368.7 5.00
Page 26 of 41
1988 21.3 31.7 10.75 1291.0 -3300.1 -1443.4 9.30

1989 21.4 32.3 10.75 1304.8 -3259.4 -1995.3 10.00
1990 21.3 34.6 9.75 1671.3 -3597.8 -1587.0 8.07
1991 20.8 36.6 9.25 1688.8 -3401.5 -1385.8 7.22
1992 20.4 39.0 8.50 2097.8 -3888.3 -1255.9 4.28
1993 20.9 39.6 6.00 2271.9 -4000.5 -1112.6 -0.03
1994 21.6 40.2 5.50 2660.7 -4700.9 -1416.1 3.61
1995 22.4 40.3 6.00 3173.1 -6496.9 -2324.1 5.78
------------------------------------------------------------------------------
Source: IMF CD-ROM (April 1997)
TABLE 1.A
MAJOR MACRO ECONOMIC INDICATORS
(1980-1995)
==============================================================================
Year GDP Inflation Interest Trade Interest
($b) rates (%) rates (%) balance liquidity
base 1990 million $ million $
------------------------------------------------------------------------------
1980 32.3 13.41 10.50 -1559.6 229.2
1981 29.7 16.15 10.50 -1644.3 138.3
1982 24.3 12.52 10.50 -1452.7 173.5
1983 22.6 9.40 10.50 -1206.8 487.1
1984 22.9 10.54 10.50 -1408.3 367.7
1985 21.5 10.69 11.25 -1281.9 298.8
1986 20.7 11.00 10.75 -1420.7 371.4
1987 21.2 5.00 10.75 -1368.7 758.1
1988 21.3 9.30 10.75 -1443.4 961.9
1989 21.4 10.00 10.75 -1995.3 469.0
1990 21.3 8.07 9.75 -1587.0 602.9
1991 20.8 7.22 9.25 -1385.8 1206.9
1992 20.4 4.28 8.50 -1255.9 1783.2
1993 20.9 -0.03 6.00 -1112.6 2387.9
1994 21.6 3.61 5.50 -1416.1 3102.6
1995 22.43 5.78 6.00 -2324.1 2180.1
------------------------------------------------------------------------------
Source: IMF CD-ROM (April 1997)
TABLE 1.B
MEDIUM TERM GROWTH SCENARIOS: KEY INDICATORS
(Percent of GDP, Fiscal Year)
==============================================================================
Accelerated Reforms
Actual: 93 94 95 96 97 98 99 00 89-90 94-98 99-03
Avg. Avg. Avg.
SCENARIO
------------------------------------------------------------------------------
GDP 4.5 4.8 5.2 5.7 6.3 6.7 7.0 7.3 4.2 5.7 7.4
Growth Rate
Gross Fixed 12.7 13.8 15.4 17 18.1 18.7 19.2 19.3 12.3 16.6 19.3
Investment
Private 7.0 7.6 8.5 9.8 10.5 10.8 11.1 11.1 6.2 9.4 11.1
Public 5.7 6.2 6.9 7.2 7.6 7.9 8.1 8.2 5.8 7.2 8.2
National 10.5 12.0 12.9 13.9 14.3 14.4 14.4 14.5 7.8 13.5 14.6
Saving
Page 27 of 41
Private 7.5 9.0 9.4 10.1 10.4 14.4 10.2 10.3 6.2 9.9 10.4
Public 3.0 3.0 3.5 3.8 3.9 4.0 4.2 4.2 1.6 3.6 4.2
Government 11.7 12.1 12.4 12.6 12.8 13.0 13.3 13.7 10.3 12.6 13.9
Budget Revenue
Expenditure -17.1 -17.1 -17.7 -17.9 -18.3 -18.6 -18.9 -19.2 -16.6 -17.9 -19.5
Overall -5.4 -5.0 -5.3 -5.3 -5.5 -5.6 -5.6 -5.5 -6.3 -5.3 -5.6
deficit
------------------------------------------------------------------------------
Source: The World Bank, 1994
TABLE 2
STOCK MARKET TRENDS (END OF MAY 1996)
==============================================================================
Total Number of June 1994 May 1996 % change
------------------------------------------------------------------------------
Securities (SEC) 161 201 24.85
Companies (COM) 148 183 23.65

Mutual Fund (MF) 6 7 16.67
Debentures (DB) 7 11 36.36
Shares, MF,
Certificates, DB 224,294,000 364,066,923 38.39
of all listed SEC
Share of listed
Companies (SLC) 222,946,899 362,007,819 62.37
Certificates of
all MF (CLMF) 950,000 1,250,000 31.58
Debenture (DB) 397,104 809,104 103.75
Issued Capital of 257,528,991 540,413,526 109.85

all Listed SEC (IKLE)
Issued Capital of
all COM (IKCO) 231,690,491 482,014,366 108.04
Issued Capital of
all MF (IKMF) 2,375,000 3,125,000 31.58
Issued Capital of
all DB (IKDB) 23,463,500 55,274,160 135.58
Market Capitalization
of all SEC (MKLS) 922,126,107 1,475,799,633 60.24
of all COM (MKCO) 850,151,295 1,470,896,833 73.02
of all MF (MKMF) 46,575,000 11,717,863 -74.84
of all DB (MKDB) 25,399,812 53,184,969 109.39
------------------------------------------------------------------------------
Source: SEC 1996, Annual Report.
SEC=Securities, COM=Companies, MF=Mutual Fund, DB=Debentures,
SLC=Share of Listed Companies, CLMF=Certificates of all Mutual Fund,
IKLE=Issued Capital of all Listed Securities, IKCO=Issued Capital
of all Companies, IKMF=Issued Capital of all Mutual Fund,
Page 28 of 41
IKD=Issued Capital of all Debentures, MKLS=Market Capitalization of all

Securities, MKC=Market Capitalization of all Companies, MKMF=Market
Capitalization of all Mutual Fund, MKDB=Market Capitalization
of all Debentures.
TABLE 2.A
STOCK MARKET SITUATION (Tk 40=US $1)
HIGHLIGHTS AS OF 30 JUNE 1994
==============================================================================
Total Number of Listed Securities 161

------------------------------------------------------------------------------
Total number of Companies 148
Total number of Mutual Fund 6
Total number of Debentures 7
Total number of Shares, Mutual Fund Certificates

and Debentures of all Listed Securities 224,294,003
------------------------------------------------------------------------------
Total number of Shares of Listed Companies 222,946,899
Total number of Certificates of all Listed Mutual Funds 950,000
Total number of Debentures of all Listed Debentures 397,104
Total Issued Capital of All Listed Securities $257,528,991

------------------------------------------------------------------------------
Total issued Capital of all Companies 231,690,491
Total issued Capital of all Mutual Funds 2,375,000
Total issued Capital of all Debentures 23,463,500
Total Market Capitalization of All Listed Securities $922,126,107

------------------------------------------------------------------------------
Total market Capitalization of all Companies 850,151,295
Total market Capitalization of all Mutual Funds 46,575,000
Total market Capitalization of all Debentures 25,399,812
------------------------------------------------------------------------------
Source: Securities and Exchange Commision, Annual Report
July 1993 - June 1994.
TABLE 2.B
STOCK MARKET SITUATION (MAY 1996)
(Tk 40=US $1)
------------------------------------------------------------------------------
Total Number of Listed Securities 201

------------------------------------------------------------------------------
Total number of Companies 183
Total number of Mutual Fund 7
Total number of Debentures 11
Total number of Shares, Mutual Fund Certificates

and Debentures of all Listed Securities 364,066,923
------------------------------------------------------------------------------
Total number of Shares of Listed Companies 362,007,819
Total number of Certificates of all Listed Mutual Funds 1,250,000
Total number of Debentures of all Listed Debentures 809,104
Total Issued Capital of All Listed Securities TK. 21,616,541,030

US$ 540,413,526
------------------------------------------------------------------------------
Page 29 of 41
Total issued Capital of all Companies TK. 19,280,574,630

US$ 482,014,366
Total issued Capital of all Mutual Funds TK. 125,000,000
US$ 3,125,000
Total issued Capital of all Debentures TK. 2,210,966,400
US$ 55,274,160
Total Market Capitalization of All Listed Securities TK. 59,031,986,528

US$ 1,475,799,663
------------------------------------------------------------------------------
Total Market Capitalization of all Companies TK. 56,435,873,328
US$ 1,410,896,833
Total Market Capitalization of all Mutual Funds TK. 468,714,500
US$ 11,717,863
Total Market Capitalization of all Debentures TK. 2,127,398,700
US$ 53,184,969
------------------------------------------------------------------------------
Source: Monthly Review, Dhaka Stock Exchange Ltd., April 1996.
TABLE 2.C
STOCK MARKET HIGHLIGHTS
==============================================================================
Indicators As on As on Growth
30 June 30 June Rate (%)
1995 1994
------------------------------------------------------------------------------
Total No. of Listed Securities 188 156 20.51%
Total No. of Listed Companies 173 144 20.14%
Total No. of Mutual Funds 6 6 --
Total No. of Debentures 9 6 50.00%
Total No. of Tradable Securities 325.5 214.4 51.82%
Total Issued Capital of all Listed Securities 457.9 231.7 97.62%
Total Market Capitalization 1249.95 817.88 52.83%
Total Turnover of Securities 25.9 11.6 123.28%
Total Amount Traded 116.52 61.07 90.79%
All Share Price Index (Point) 776.88 659.83 17.74%
------------------------------------------------------------------------------
Source: Securities and Exchange Commission, Annual Report
July 1993 - June 1994.
TABLE 3
AVERAGE TURNOVER (% CHANGE)
==============================================================================
1992 1993 1994 1995
% increase % increase % increase % increase
in amount in amount in amount in amount
traded traded traded traded
------------------------------------------------------------------------------
Daily Ave. 52.90 520.28 100.76 84.36
Weekly Ave. 54.59 505.26 90.79 55.20
Monthly Ave. 54.59 505.26 90.79 55.19
------------------------------------------------------------------------------
July 1993 - April 1996.
TABLE 3.A
AVERAGE TURNOVER
==============================================================================
July 1992 - June 1993 July 1993 - June 1994
No. of SEC Amount Increase No. of SEC Amount Increase
Page 30 of 41
traded in amount traded in amount

in ($) traded (%) in ($) traded (%)
------------------------------------------------------------------------------
Daily Ave. 15123 34914.3 52.90 41067 216566.8 520.28
Weekly Ave. 84099 194042.7 54.59 222708 1174458.3 505.26
Monthly Ave. 364469 840851.5 54.59 965070 5089319.3 505.26
------------------------------------------------------------------------------
July 1993 - June 1994.
TABLE 3.B
AVERAGE TURNOVER
==============================================================================
No. of SEC Amount Increase No. of SEC Amount Increase
traded in amount traded in amount
in ($) traded (%) in ($) traded (%)
------------------------------------------------------------------------------
Daily Ave. 96817 17391048 100.76 189777 32062162 84.36
Weekly Ave. 498982 89630783 90.79 823403 139111159 55.20
Monthly Ave. 2162254 388400062 90.79 3567805 602768653 55.19
------------------------------------------------------------------------------
TABLE 4
STOCK MARKET GROWTH RATE
==============================================================================
Total Growth As on As on As on Growth
No. of Rate (%) 30 June 30 June 30 June Rate (%)
1996-95 1996 1995 1994 1995-94
------------------------------------------------------------------------------
LSC 6.91% 201 188 156 20.51%
LCOM 5.78% 183 173 144 20.14%
MF 16.67% 7 6 6 0.0%
DB 22.22% 11 9 6 50.00%
TSEC 11.86% 364.1 325.5 214.4 51.82%
ICSEC 18.02% 540.4 457.9 231.7 97.62%
MK 18.07% 1475.8 1249.95 817.88 52.83%
Turnover of SEC ------ ------ 25.9 11.6 123.28%
Total Amount Traded ------ ------ 116.52 61.07 90.79%
All Share Price ------ ------ 776.88 659.83 17.74%
Index (Point)
------------------------------------------------------------------------------
July 1993 - June 1994.
TABLE 5
STOCK MARKET TREND (1985 - May 1996)
==============================================================================
Year Ended No. of No. of Market Turnover Total
30 June Listed SEC Capitalization Million Amount
SEC ---------------- Mill.
Mill. (%) dollar
dollar change
------------------------------------------------------------------------------
1985 69 80.7 --- 35.1% --- ---
1986 78 88.9 85.91 12.7% 0.7 0.86
1987 92 105.3 316.77 121.3% 1.9 3.81
1988 111 123.1 339.17 6.6% 1.1 3.02
1989 116 149.1 338.99 13.2% 1.7 3.86
1990 134 161.1 287.15 -25.2% 2.7 4.70
Page 31 of 41
1991 138 167.2 259.93 -9.5% 2.3 3.50

1992 149 172.3 307.48 18.3% 3.8 6.52
1993 153 195.1 452.47 47.2% 4.3 10.09
1994 161 224.3 817.88 80.8% 11.6 11.07
1995 188 325.5 1249.95 52.8% 25.9 116.52
1996 201 364.1 --- --- --- ---
------------------------------------------------------------------------------
July 1993 - June 1994.
TABLE 5.A
GROWTH PATTERN OF LISTED COMPANIES AND ALL SHARE PRICE INDEX 1985 - 1994
==============================================================================
YEAR NO. OF NO. OF PAID-UP MARKET ALL
ENDED COM. SHARE CAPITAL CAPITALIZATION SHARE
30 JUNE (Mi.) ------------------|-------------------- PRICE
mil. % change| mil. % change
n.c.u | n.c.u.
------------------------------------------------------------------------------
1985 69 80.7 2017.5 30.4 3048.1 35.1 154.8
1986 78 88.9 2098.5 4.0 3436.5 12.7 244.4
1987 92 105.3 3149.7 18.7 12670.9 121.3 512.0
1988 111 123.1 3663.7 16.3 135668 6.6 533.6
1989 116 149.7 4539.2 23.9 15359.5 13.2 498.2
1990 134 161.1 5361.1 18.1 11485.9 -25.2 349.1
1991 138 167.2 5486.6 4.2 10397.3 -9.48 296.2
1992 149 172.3 6020.3 7.86 12399.1 18.29 369.5
1993 153 195.1 8201.7 36.23 18098.7 47.15 391.8
1994 153 238.3 11354.8 38.44 40636.8 124.53 849.8
1995 188 -- -- -- -- -- --
1996 201 -- -- -- -- -- --
------------------------------------------------------------------------------
July 1993 - June 1994.
TABLE 6.A
SECURITIES MARKET TREND (FY 1993 - 1995)
==============================================================================
Month No. of Amount No. of Amount No. of Amount
Share & in Taka Share & in Taka Share & in Taka
Debentures Debentures Debentures
------------------------------------------------------------------------------
Jul. 269754 27582885 818699 169587522 3557128 589343023
Aug. 335075 26936657 1607636 466327528 2670551 504621301
Sep. 426445 37011400 1371166 268020995 5052167 684306991
Oct. 703133 58107981 3434641 575394862 6001296 970146339
Nov. 1291616 151269417 2848496 449683833 3675175 708179169
Dec. 827121 118383402 1567122 335340574 3069473 527875926
Jan. 1469455 525536023 1083032 213782157 4148472 646198069
Feb. 1239429 189475922 1599854 342417024 1739353 261949283
Mar. 1889346 531614949 1854819 350520921 959913 159400436
Apr. 1405396 356116835 2118364 373710549 4804523 975665988
May 1009473 232632049 2065075 391074908 -- --
Jun. 694594 188205737 5578138 724939866 -- --
------------------------------------------------------------------------------
TABLE 6.B
STOCK MARKET OPERATIONAL STATISTICS (JULY 1994 - JUNE 1995)
==============================================================================
Page 32 of 41
Month Total Turnover Total Amount Market Change in

(No. of Traded Capitalization Market
securities) (Mil dollar) (Mil dollar) Capitali-
zation (%)
------------------------------------------------------------------------------
July '94 818669 4.24 806.88 -1.34
August 1607636 11.66 868.38 -7.62
September 1371166 6.70 880.20 +1.35
October 3434641 14.39 975.30 +10.81
November 2848496 11.24 1073.98 +10.12
December 1567122 8.38 1044.25 -2.77
January '95 1083032 5.34 1031.90 -1.19
February 1599854 8.56 1050.43 +1.80
March 1854810 8.76 1083.43 +3.14
April 2118364 9.34 1174.94 +8.45
May 2065075 9.28 1095.23 -6.79
June 5578138 18.12 1249.95 +14.13
------------------------------------------------------------------------------
July 1994 - June 1995 25947042 116.52 1249.95 +52.81
------------------------------------------------------------------------------
July 1993 - June 1994.
TABLE 7.A
TOP TEN GAINERS
==============================================================================
Company Price (+ %) Turnover ('000Tk)
------------------------------------------------------------------------------
Bengal Food 9.71 11.19
Savar Refractories 8.21 22.35
Quasem Dry Cells 8.18 59.81
Stylecraft 7.91 7.50
Apex Weaving 6.52 5,770.41
Gemini Sea Food 4.65 36.18
Beximco Synthetics 3.23 31.24
Phoenix Insurance 2.02 236.18
Bengal Carbide 1.96 126.33
Central Insurance 1.74 3.12
------------------------------------------------------------------------------
Source: Business Independent, May 31, 1996.
TABLE 7.B
KEY INDICATORS, MAY 30, 1996
TOP TEN TURNOVER LEADERS
==============================================================================
Company Volume (Shares) Value ('000Tk)
------------------------------------------------------------------------------
Apex Weaving 52650 5,770
Orion Infusions 49700 5,325
Chittagong Cement 2605 4,515
BD. Dying & Finis. 23040 3,521
Mita Textile Mills 50100 3,507
Singer Bangladesh 335 2,656
BOC (BD) Ltd. 5650 1,082
Bangladesh Lamps 340 1,010
IDLC Ltd. 420 855
Lexco Limited 700 696
------------------------------------------------------------------------------
Page 33 of 41
TABLE 7.C
TOP TEN BY MARKET CAP.
==============================================================================
Company Mkt Cap. (M. Tk) Contribution to Tot. M Cap.%
------------------------------------------------------------------------------
BTC 5720 9.56
Singer Bangladesh 3904 6.52
BOC (BD) Ltd. 2428 4.06
Chittagong Cement 2236 3.74
Shinepukur Holdings 1890 3.16
Beximco Pharma 1555 2.60
IDLC Ltd. 1528 2.55
Square Pharma 1460 2.44
Glaxo Bangladesh 1446 2.42
Padma Textile Mills 1298 2.17
------------------------------------------------------------------------------
TABLE 7.D
KEY STATISTICS FOR THE STOCK MARKET--APRIL 1996
10 MOST ACTIVELY TRADED ISSUES
==============================================================================
1995 - 1996
Rank Name of the Issues Monthly % Change -------------------
Turnover on Month Year High Year Low
in Taka Taka Taka
------------------------------------------------------------------------------
1 Beximco Pharmaceuticals Ltd. 101339485.00 2.17 73.00 45.00
2 Singer Bangladesh Ltd. 91377615.00 22.72 9100.00 4540.00
3 Bangladesh Lamps 80758927.00 0.99 4550.00 2500.00
4 Chittagong Cement Mills Ltd. 79881175.00 84.52 1800.00 475.00
5 Meghna Cement Mill Ltd. 41087314.50 33.05 360.00 160.00
6 Agricultural Marketing Co. 39995349.00 -- 430.00 240.00
7 Reckitt and Colman (BD) Ltd. 34685626.00 -1.20 230.00 155.00
8 National Polymer. 34517700.00 15.93 760.00 262.00
9 Eastern Housing Ltd. 28868260.00 -2.74 160.00 90.00
10 BOC Bangladesh Ltd. 26630460.00 0.12 250.00 160.00
------------------------------------------------------------------------------
Total (A) Tk. 559,141,912
Market Total (B) Tk. 969,158,244
(A/B) Ratio 57.69%
------------------------------------------------------------------------------
TABLE 7.E
TOP TEN LOSERS
==============================================================================
Company Price (%) Turnover ('000Tk)
------------------------------------------------------------------------------
Dandy Dyeing Ltd. -7.61 19.40
Shandhani Life Ins -7.22 9.00
Mita Textile Mills -6.67 3,507.23
Singer Bangladesh -6.38 2,655.51
Karim Pipe -5.78 79.20
National Tubes -4.99 210.35
Rupan Oil -4.94 32.96
Chittagong Cement -4.49 4,515.01
Orion Infusions -4.24 5,324.81
BCIL -4.14 20.13
------------------------------------------------------------------------------
Page 34 of 41
TABLE 7.F
TURNOVER SUMMARY
==============================================================================
By Category By Sector
------------------------------------------------------------------------------
Category-A 63.80% Banks 3.07% Textile 35.98%
Category-B 6.50% Investment 0.41% Phrma. & Chem. 16.57%
Category-C 4.00% Engineering 13.26% Paper & Printing 0.55%
Category-D 25.16% Food & Allied 4.62% Service 0.60%
Debenture 0.54% Fuel & Powe 3.47% Miscellaneous 18.71%
Jute 0.00% Insurance 2.75%
------------------------------------------------------------------------------
TABLE 7.G
DSE, MAY 30--AT A GLANCE
==============================================================================
All Share Price Index 864.86779
Tot. Mt. Cap. (Tk) 5,872,44.09.251.99
Day's Change in Index (-)1.4855%
Tot. Mt. Cap. (US$) 146,81,10,231.30
Tot. Turnover (Tk.) 38,969,497
Tot. No. of Listed Securities 201
Tot. Turnover (No.) 255,782
Tot. No. of Share Issues 183
Day's Howlas (Trades) 915
Tot. No. of Mutual Funds 7
Day's Issues Traded 95
Tot. No. of Debentures Issues 11
Issues Gained 23
Tot. No. of Shares & Deb. 366,407,283
Issues Incurred Loss 63
Tot. No. of Capital Debentures Tk. 21,708,827,030
------------------------------------------------------------------------------
Source: Business Indepent, May 31, 1996.
TABLE 7.H
CHITTAGONG STOCK EXCHANGE
MAY 30, 1996
==============================================================================
Turnover: Tk. 299,735.00 CSE Index: 395.81 Market Cap: Tk. 33.09b
------------------------------------------------------------------------------
Page 35 of 41
CSE, MAY 30--AT A GLANCE

------------------------------------------------------------------------------
All Share Price Index 398.81
Issues Incurred Loss 4
Day's Change in Index -0.0328%
Issues Unchanged 0
Tot. Turnover (Tk.) 229,735.00
Tot. Mat Cap. (Tk) 33,097,593,178.00
Turnover (No) 835
Tot. No. of Listed Securities 71
Day's Howlas (Trades) 17
Tot. No. of Shared Issues 64
Day's Issues Traded (Boldtype) 6
Tot. No. of Mutual Funds 7
Issues Gained 2
Tot. No. of Debenture Issues 0
------------------------------------------------------------------------------
TABLE 7.I
FIVE MOST ADVENCED ISSUES
==============================================================================
1995 - 1996
Rank Name of the Issues Monthly % Change Year Year
Turnover on Month High Low
in Taka in Taka in Taka
------------------------------------------------------------------------------
1 Chittagong Cement Mills Ltd. 79881175.00 84.52 1800.00 475.00
2 Metalex Corporation 210910.00 50.00 165.00 64.00
3 National Tubes 4195740.00 47.82 510.00 132.00
4 Eagle Box & Carton 103350.00 40.00 42.00 24.00
5 Aman Sea Food 1261715.00 39.98 3200.00 950.00
------------------------------------------------------------------------------
TABLE 7.J
5 MOST DECLINED ISSUES
==============================================================================
1995 - 1996
Rank Name of the Issues Monthly % Change Year Year
Turnover on Month High Low
in Taka in Taka in Taka
1 Sajib Garments 978075.00 -24.29 90.00 45.00
2 Purabi Gen. Insurance 168075.00 -15.27 175.00 114.00
3 Apex Weaving & Finish 15556876.00 -15.06 200.00 90.00
4 Petro Synthetics Products 300.00 -14.29 15.00 5.00
Page 36 of 41
5 Rupan Oil 116090.00 -13.39 7.80 5.00

------------------------------------------------------------------------------
TABLE 7.K
MAGNITUDE OF PRICE FALL OF SELECTED STOCKS
(NOVEMBER '94 to MAY '95)
==============================================================================
Name of the company Price in Tk. Price in Tk % of change over
as on 30.11.94 as on 30.05.95 previous price
------------------------------------------------------------------------------
Aftab Automobiles 288.33 257.33 (-) 10.75
Azia Pipe 770.00 602.41 (-) 21.76
Bangladesh Autocars 144.70 107.38 (-) 25.79
Beximaco Fisheries 291.73 176.73 (-) 39.39
Bengal Biscuit 237.20 158.00 (-) 33.39
Meghna Shrim 228.42 144.90 (-) 36.56
BOC (Bangladesh) Ltd. 204.79 152.10 (-) 25.73
Apex Spinning Ltd. 453.91 275.00 (-) 39.42
Beximco Knitting 239.36 150.55 (-) 37.10
Mithun Corporation 169.50 123.00 (-) 27.43
A.C.I. 165.44 108.00 (-) 34.72
Kohinoor Chemical 188.53 177.10 (-) 6.06
Beximco Infusion 634.62 461.50 (-) 27.28
Bata Shoe 262.39 151.56 (-) 42.42
Orion Infusion 145.87 102.93 (-) 29.44
Chittagong Cement 597.27 410.00 (-) 31.42
Apex Footwear 570.00 465.00 (-) 18.42
Bangladesh Thai Aluminium 124.70 129.77 (-) 04.07
Dynamic Textile 135.69 85.00 (-) 37.36
------------------------------------------------------------------------------
July 1993 - June 1994.
TABLE 8.A
FOREIGN PORTFOLIO INVESTMENT
==============================================================================
Sl No Indicators 1994-95 1993-94 Increase/Decrease
Amount %
------------------------------------------------------------------------------
01. Gross portfolio capital inflow 3094.4 3196.6 -2.56 -0.08
02. Gross portfolio investment 2982.7 3101.8 -2.98 -0.10
03. Gross proceed of securities sold 1334.2 965.1 +9.23 +0.96
04. Capital gains 406.1 454.6 -1.21 -0.27
05. Dividends 92.7 17.6 +1.88 +10.67
06. Gross portfolio capital outflow 1388.9 918.4 +11.76 +1.28
------------------------------------------------------------------------------
July 1993 - June 1994.
TABLE 8.B
FOREIGN INVESTMENT IN BANGLADESH PRIMARY SECURITIES MARKET
(JULY 1993 - JUNE 1994)
Tk 40 = US $1
==============================================================================
No. Issuer
1. Beximco Synthetics Ltd. 0.33 0.19 55.55
2. Apex Spinning & Knitting Mills Ltd. 0.09 0.04 42.85
3. Beximco Fisheries Ltd. 0.20 0.12 59.70
4. Beximco Knitting Ltd. 0.25 0.10 40.00
Page 37 of 41
5. Bengal Biscuits Ltd. 0.09 0.02 33.33

6. Dynamic Textile Industries Ltd. 0.45 0.34 76.85
7. Northern Jute Manufacturing Co. Ltd. 0.02 0.01 60.00
8. Mala Chemical & Pharmaceutical Ind. Ltd. 0.25 0.15 60.00
Total 1.68 0.97 57.84

------------------------------------------------------------------------------
Source: Securities and Exhange Commission, Annual Report
July 1993 - June 1994.
TABLE 8.C
FOREIGN INVESTMENT IN IPO
(JANUARY - AUGUST 1994)
==============================================================================
1. Dynamic Textile 17.92 13.62 76.85
2. Beximco Fisher 8.04 4.80 59.70
3. Apex Spinning 3.50 1.50 42.85
4. Beximco Synthetic 13.50 7.50 55.55
5. Bengal Biscuits 3.50 1.00 33.33
6. Beximco Knitting 10.00 4.00 40.00
7. Northern Jute 0.85 0.51 60.00
8. Mala Chemical 10.00 6.00 60.00
9. Estern Housing 30.00 16.00 53.00
10. Mita Textile 9.00 4.00 44.00
------------------------------------------------------------------------------
TABLE 8.D
FOREIGN PORTFOLIO INVESTMENT
==============================================================================
Particulars (Taka Crore) 1993 1994
------------------------------------------------------------------------------
Securities purchased by the Foreign investers (Value) 48.88 492.03
Sale proceeds Securities sold by the foreign Investors 15.44 152.51
Sale proceeds remitted by the Foreign Investors 14.46 147.54
------------------------------------------------------------------------------
Source: SEC
TABLE 9.A
BANGLADESH
(CURRENCY MOUNTS IN MILLIONS)
==============================================================================
1983 1984 1985 1986 1987
------------------------------------------------------------------------------
A. No. of Listed Co. 43 56 69 78 85
Dhaka Stock Exchange
B. Market Capitalization
1) In taka 1,211 2,256 3,493 5,731 12,635
2) In U.S. dollars 48 87 113 186 405
C. Trading Value
1) In taka -- 10 32 48 178
2) In U.S. dollars -- 0.4 1.1 1.6 5.8
3) Turnover ratio -- 0.6 1.1 1.0 1.9
D. Local Index
1) DSE All Share Price
Index (1985=100) -- -- -- 244.4 512.3
2) Change in index (%) -- -- -- 144.4 109.6
3) P/E ratio -- -- -- 6.80 21
Page 38 of 41
4) P/BV ratio -- -- -- 1.00 2

5) Dividend yield (%) -- -- -- 9.30 4
E. Economic Data
1) GDP (US$) 11717 13801 14482 15313 17394
2) Change in consumer
price index (%) 9.4 10.5 10.7 11.0 9.5
3) Exchange rates
(end of period) 25.0000 26.0000 31.0000 30.7999 31.2000
4) Exchange rates
(average of period) 24.6149 25.3539 27.9949 30.4069 30.9500
------------------------------------------------------------------------------
Source: IFC, 1993.
TABLE 9.B
BANGLADESH
(CURRENCY MONTHS IN MILLIONS)
==============================================================================
1988 1989 1990 1991 1992
------------------------------------------------------------------------------
A. No. of Listed Co.
Dhaka Stock Exchange 101 116 134 138 145
B. Market Capitalization
1) In taka 13,557 15,351 11,486 10,397 12,299
2) In U.S. dollars 430 476 321 269 315
C. Trading Value
1) In taka 130 174 195 116 438
2) In U.S. dollars 4.1 5.4 5.6 3.2 11.2
3) Turnover ratio 1.0 1.2 1.5 1.1 3.9
D. Local Index
1) DSE All Share Price
Index (1985=100) 533.6 467.8 350.8 296.3 369.6
2) Change in index (%) 4.2 -12.3 -25.01 -15.54 24.74
3) P/E ratio 8 23.9 13.7 9.5 10.6
4) P/BV ratio 2 1.1 1.1 0.9 1.5
5) Dividend yield (%) 7 4.4 7.3 7.7 6.6
E. Economic Data
1) GDP (US$) 18,732 20,153 22,579 21,921 --
2) Change in consumer
price index (%) 9.3 10.0 8.1 7.2 --
3) Exchange rates
(end of period) 31.5091 32.2700 35.7900 38.5800 39.0000
4) Exchange rates
(average of period) 31.7300 32.2700 34.5670 36.5962 38.9510
------------------------------------------------------------------------------
Source: IFC, 1993.
TABLE 9.C
KEY INDICATORS OF EMERGING ASIAN STOCK MARKETS 1994
==============================================================================
Country Market Turnover % Change P/E Div. Market
Capita. Ratio in Index capita.
in mill. as a % of
US$ GDP
------------------------------------------------------------------------------
Bangl. 1.05 14.3 115.8 10.1 5.7 4.07
Page 39 of 41
Srila. 2.88 25.9 -0.2 17.6 1.7 25.77

Pakis. 12.26 235.2 -5.3 23.3 1.6 24.03
China 43.52 29.4 -22.3 na 2.3 11.43
Indon. 47.24 235.2 -20.2 20.2 1.5 31.05
Pillp. 55.51 29.4 -12.8 30.8 0.4 95.49
India 127.5 24.1 8.6 26.9 1 46.21
Thail. 131.47 60.9 -19.2 21.2 2 104.14
Korea 191.78 174.1 18.6 34.5 3.8 55.20
Malay. 199.27 58.9 -23.6 29.0 1.8 294.56
------------------------------------------------------------------------------
Source: Emerging Stock Markets Factbook, 1995.
TABLE 9.D
CAPITAL MARKET FEATURES IN SOUTH ASIAN COUNTRIES
==============================================================================
Characteristics Bangladesh India Pakistan Sri Lanka
------------------------------------------------------------------------------
Socio-Economic GDP (in US$ million) 116 1002 261 47
Per Capital GNP (in US$) 220 310 440 550
Savings % of GDP 8% 19% 12% 13%
Securities Market No. of Listed Securities 166 3134 644 195
Market Capitalization (in US$ billion) 0.98 71.8 7.6 1.8
Average Daily Trade 0.33 87.3 6.6 2.0
Market Capitalization as a % of GDP 1% 7% 3% 4%
------------------------------------------------------------------------------
Source: Securities and Exchange Commission, Annual Report, 1994.
TABLE 9.E
==============================================================================
Country Access Repatriation Tax Rates for U.S. Investors
Foreign -------------- ----------------------------
Investors Income Capital Interest Dividends Capital Gains
------------------------------------------------------------------------------
Argentina Free Free Free 20 20 0
Bangladesh RFE SR SR -- -- --
Brazil Free Free Free 15 15 15
Chile RFE Free SR 35 35 35
China SCS SR SR 10 10 0
Colombia Free Free Free 7 20 0
Costa Rica RFE SR SR -- -- --
India AIO SR SR 10 10 10
Indonesia RFE SR SR 20 20 20
Korea SCS Free Free 25 25 25
------------------------------------------------------------------------------
TABLE 10.A
MAJOR MACRO ECONOMIC INDICATORS OF EMERGING MARKETS
(MAY 1995 - MAY 1996)
==============================================================================
Country % Change Consumer Latest 12 mo. Foreign
on year Prices Trade Balance Reserves
Earlier GDP $BN. $BN 1995
------------------------------------------------------------------------------
Bangladesh (1994) +3.24 +5.31 -14.33 31.0
China +10.2 +9.7 +7.2 59.4
Hong Kong +3.0 +6.9 -19.0 49.3
India +4.7 +9.8 -3.5 20.9
Indonesia +8.1 +7.5 +5.2 12.3
Malaysia +8.3 +3.6 -3.28 24.9
Philippines +4.7 +10.4 -7.5 5.6
Page 40 of 41
Singapore +10.7 +1.1 -7.3 61.3

South Korea +7.9 +5.1 -10.7 27.3
Taiwan +5.3 +2.8 +11.1 99.5
Thailand +8.5 +6.1 -15.6 30.7
------------------------------------------------------------------------------
Source: The Economists: June 15-21, 1996.
TABLE 10.B
==============================================================================
Country Currency Int. Rates Stock % Change % Change
units Short-term Market Dec '95 Dec '95
per $ 1995 % p.a. June 12th in n.c.u. in US$
------------------------------------------------------------------------------
Bangladesh 40.28 6.0 -- -- --
China 8.30 na 790.8 +37.5 +37.5
Hong Kong 7.74 5.56 10,959.0 +8.8 +8.7
India 31.4 12.40 3,939.2 +26.6 +28.0
Indonesia 2,226 15.63 596.1 +16.0 +13.9
Malaysia 2.44 7.56 1,123.5 +12.9 +15.1
Philippines 25.7 11.44 3,249.2 +25.2 +25.2
Singapore 1.39 2.75 2,289.2 +1.0 +1.3
South Korea 764 13.70 873.3 -1.1 -3.7
Taiwan 25.8 5.50 6,301.8 +22.2 +20.3
Thailand 24.6 11.00 1,243.8 -2.9 -3.6
------------------------------------------------------------------------------
Source: The Economists: June 15-21, 1996
TABLE 11
FOREIGN INVESTMENT IN IPO
(JANUARY - AUGUST 1994)
==============================================================================
Issued By Public Issue Foreign % of Foreign
(1 crore = 10 m) Participation Participation
(1 crore = 10m)
------------------------------------------------------------------------------
1. Dynamic Textile 179.2 136.2 76.85
2. Beximco Fisher 80.4 48.0 59.70
3. Apex Spinning 35.0 15.0 42.85
4. Beximco Synthetic 135.0 75.0 55.55
5. Bengal Biscuits 35.0 10.0 33.33
6. Beximco Knitting 100.0 40.0 40.00
7. Northern Jute 8.5 5.1 60.00
8. Mala Chemical 100.0 60.0 60.00
9. Estern Housing 300.0 160.0 53.00
10. Mita Textile 90.00 40.0 44.00
------------------------------------------------------------------------------
Source: SEC and DSE, Annual Report, 1996.
CHART 1
SECURITIES AND EXCHANGE COMMISSION
ORGANIZATIONAL AND FUNCTIONAL CHART
==============================================================================
CHAIRMAN
|
|
1-Overall Policy Issues
2-Co-ordination and Supervision
3-Liaison with Government
4-Public & External Relations
|
Page 41 of 41
|
-----------------------------------------------------------------
| | | |
| | | |
Member Member 1 Member 2 Member
(Nominated) | | (Nominated)
| |
| |
Registration Capital Supervision & Monitoring Regulations
Issue Corporate Audit Corporate Legal R&D; Ed. & Training
Administation & Finance |
| |
| |
------------------------ -------------------------------------
| | | | | |
| | | | | |
Executive Executive | Execututiv | Executive
Director Director Corp. Director Legal Director
Admin. & Corporate Acct. Supervision Counsel R&D Ed.
Finance Finance & Monitoring | & Training
| | | | |
| ----------- | ----------- -----------
| | | | | | | |
| | | | | | | |
Director Director Director Director Director Director Director Director
Admin. Regis. Capital Super. Corp. Regul. R&D Ed. &
& Fin. Issue & Monit. Legal Training
NOTE: ALL CHARTS HAVE BEEN OMITTED.

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POTENTIAL GAINS FROM EMERGING STOCK MARKET OF

Mazhar M. Islam, Texas A&M International University

The explosive growth of the stock market in Bangladesh over the

World equity markets are booming, and the growth and

barriers to international capital flows [5]. The growing

In order to avoid any substantial loss and to obtain

--to provide a summary of Bangladesh economic performance relating

--to examine the stock market in Bangladesh by investigating it's

--to examine the importance and the process of security analysis

--to compare the performance of Bangladesh share market with other

--to summarize the problems and prospects of the stock market in

In order to achieve these objectives this study is organized as

DATA SOURCES & METHODOLOGY:

Data on different variables of the share market are collected

II. TRENDS IN BANGLADESH ECONOMY

Twenty-five years after independence, Bangladesh still remains a

The past several years have seen Bangladesh rigorously

III. GROWTH AND TREND OF SECURITIES MARKET IN BANGLADESH

The origin of stock market in Dhaka goes back to 1954 when a

1988, the growth in number of listed securities slowed down

The growth in market capitalization was relatively slow from 1976

The increase in the volume of transactions is not merely due to

IV. GOVERNMENT EFFORT FOR STRONGER SECURITIES MARKET

The past several years have seen Bangladesh rigorously

remained dormant for long, in the hope of attracting large

The Government took a number of measures to encourage foreign and

* free repatriation of capital and fully abolishing capital gains

Dhaka Stock Exchange

The Dhaka Stock Exchange (DSE) is a front line organization for

government privatization policy, liberalization of industrial

Chittagong Stock Exchange:

The SEC approved the establishment of the second stock exchange

As on 7th August, 1996 there were 203 and 74 listed securities

THE SECURITIES MARKET INSTRUMENTS

The government securities include treasure bills for financing

VI. REGULATORY FRAMEWORK: SECURITIES AND EXCHANGE COMMISSION

In order to protect the interest of investors in securities, and

to develop a viable securities market the Securities and Exchange

The Board of SEC is the policy-making and oversight body, while

i. Company Act, 1994;

In addition to these laws, the SEC is supposed to be guided by

SEC is composed of five members: Chairman, 2 full time members

The broad objectives of the Commission are:

1. protection of interest of investors in securities;

The Commission's main functions include:

1. regulating the business of stock exchanges or any other

Thus, the work and strategies of the Commission are to protect

The Commission, with prior approval of the Government, made the

i. Stock-Dealer, Stock-Broker and Sub-Broker Amendment

The Commission also developed, after consultation with all

iii. Insider Trading Regulations;

These regulations were approved by the Ministry of Finance; and

In order to ensure proper issuance of securities by public

i. Initial Public Offering (IPO) to Local Investors;

In addition, the Commission issued Code of Ethics and Guideline

MONITORING AND SUPERVISION

The Commission monitored compliance of laws by public listed

* annual general meetings (AGMs) were held on time by public

VII. IMPORTANCE AND THE PROCESS OF STOCK MARKET ANALYSIS:

Stock market analysis consists of gathering information,

worth. Eventually, intrinsic value of the share depends on