skunk.works : Bangladesh.....
Yawer Sayeed returned to his native Bangladesh from Australia to set up a money-management company in 1999. After eight lean years his business is booming.
A military-backed government in place since January has lured investors by pledging to sell state enterprises and arresting about 150 former officials to fight corruption. The Dhaka Stock Exchange Index is at a 10-year high, up 66 percent this year, making it Asia's top performer after China.
``It's been a long haul,'' said Sayeed, chief executive officer at Asset & Investment Management Services of Bangladesh Ltd., the country's first and only private fund manager. ``It's a quantum leap in the mindset of the government and bureaucracy that they're embracing privatization.''
He said he sees the same work ethic growing in Bangladesh that he saw on a 2005 trip to Vietnam, whose stock market has increased 40 times since the end of that year. The asset value of Sayeed's first two funds has more than tripled to 1 billion taka ($14.3 million) this year, and he is about to set up a third, hoping to tap demand for share offerings.
Citigroup Inc., JPMorgan Chase & Co. and Merrill Lynch & Co. are betting Bangladesh may be the next Asian success story. Last month, New York-based Citigroup, the largest U.S. bank, became the first foreign lender to get a license to offer merchant- banking and investment-banking services.
``Bangladesh is increasingly on the radar of the international investment community,'' Mamun Rashid, Citigroup's Bangladesh country officer, wrote on Sept. 19 when he announced the bank's expansion there.
JPMorgan named Bangladesh one of the ``Frontier Five'' markets worth investigating in an April 4 note, along with Kazakhstan, Kenya, Nigeria and Vietnam. Adrian Mowat, the New York-based bank's chief Asian and emerging market strategist, said growth in the country's working-age population was faster than Vietnam's.
Vietnam, which Mowat called the ``frontier market poster boy,'' sold more than 50 state-owned companies in the past year, three decades after South Vietnam fell to the Communist north. Its benchmark Ho Chi Minh City Stock Exchange VN Index has risen 44 percent in 2007 after more than doubling in 2006. The $20 billion market was worth just $500 million at the end of 2005.
In Bangladesh, 26 nonfinancial state-owned enterprises, including sugar plantations and textile mills, will be sold to private investors, according to Zulqar Nain, head of chancery at the Bangladesh embassy in Washington. So will GrameenPhone Ltd., founded by Nobel Prize winner Muhammad Yunus.
Mark Matthews, head of Asia-Pacific equity strategy at New York-based Merrill, said Bangladesh ``is probably the best reform story in Asia,'' in a July 5 note.
Bangladesh, whose 150 million people live on an average of $1.30 a day, may seem an unlikely market for international investors. Almost two-thirds of its people are in farming, and that is interrupted by periodic flooding. In August, floods displaced about 5 million people. There's also a dearth of roads, rails and bridges. The gross national product last year was $71 billion, less than two days of U.S. output.
The size of the country's market is itself a deterrent. With a total value of about $8 billion, every share of every company could be bought eight times over by Microsoft Corp. founder Bill Gates, the richest man in the U.S.
Vijay Tohani, who helps manage funds with assets valued at $22 billion, or more than twice Bangladesh's entire stock market, said it is size, not politics, that's keeping him away.
``It's still very much in its infancy,'' said Tohani, a senior portfolio manager at Singapore-based First State Investments. ``I did visit some companies, and my initial fact- finding was positive. Interesting opportunities will unfold, but it's still in the early days.''
Bangladesh's turnaround began a year ago, when President Iajuddin Ahmed canceled national elections following months of clashes between supporters of rival political parties. He installed Fakhruddin Ahmed, former governor of Bangladesh Bank, as chief adviser of the interim government in January.
The administration has arrested politicians, including former prime ministers Khaleda Zia and Sheikh Hasina Wajed, in a crackdown on corruption. On Sept. 9 the administration lifted a six-month ban on indoor political meetings. On Sept. 13, it said talks had started with political parties on changing laws ahead of elections it plans by December 2008.
The economy will grow as much as 7 percent in 2007, its fastest pace in about 30 years, because ``the transitional government has moved forward with a number of previously stalled economic reforms,'' the International Monetary Fund said in July.
The stock market will almost double in size to more than $15 billion in 2008, led by share sales of state enterprises, Salahuddin Ahmed Khan, chief executive officer of Dhaka Stock Exchange Ltd., said in an interview last month.
Grameenphone, which connects villages through mobile phones, plans to sell shares next year, Chief Executive Officer Erik Aas said in June. Yunus and Grameen Bank, which he founded in the 1970s, won last year's Nobel Peace Prize for advancing social and economic development by giving loans to Bangladesh's rural poor without asking for collateral.
Dhaka's exchange, founded in 1954, currently has 261 listed companies. Foreigners face no limits on how much they can invest.
While the Dhaka index remains about 27 percent below its record close of 3,648.75 set on Nov. 5, 1996, the rally has made Bangladeshi stocks more expensive than other emerging markets, driven by increasing inflows from Bangladeshis working overseas.
Shares are valued at about 20 times estimated earnings, said Saiful Islam, a director at Equity Partners Ltd. in Dhaka, the capital. That's higher than the ratio of 14.1 for the Morgan Stanley Capital International Emerging Markets Index.
``Returns have been fantastic,'' he said. ``Local people are bullish and foreigners are looking at the market more seriously.''
From January to May, Bangladeshis who work overseas sent home $2.6 billion, the same amount remitted for all of 2006, according to Bangladesh Bank data. Average daily trading on the exchange so far this year surged almost fivefold from the same period in 2006 to 1.19 billion taka. Individuals opened 320,000 share-trading accounts in the last six months, taking the nation's total to 1.75 million, the exchange's Khan said.
``Investors are positioning themselves in the market in anticipation of privatization and direct listings,'' said Asset & Investment's Sayeed. ``If you have an allocation for emerging markets, countries like Bangladesh or Vietnam look very good.''