COLORS Business spoke to Vice Chairman of Shanta Asset Management Arif Khan on the sideline of the US Roadshow for his thoughts on the significance of such investment summits abroad to motivate foreign investors and NRBs to choose Bangladesh as their next investment destination.
Arif Khan applauded the series of Road Shows that are being undertaken throughout the world by the Bangladesh Securities and Exchange Commission (BSEC). According to him, such events play a significant role as it provides the opportunity to highlight the robust economic growth and investment potential of Bangladesh and showcase investment opportunities and benefits available for the NRBs and foreign investors. Moreover, investors across the USA had the opportunity to meet with the high-level delegation team of Bangladesh and other related stakeholders to discuss reforms, possibilities, and suggestions regarding increased trade and investment relations with Bangladesh at the events. No doubt that such personalized experience provides avenues to mitigate investment concerns that might not have been accessible to many previously. This was also evident during the successful roadshow held in Dubai, UAE preceding the roadshow in the USA earlier this year which had overwhelming responses from both the NRB’s and foreign Institutional and individual investors.
Arif Khan took pride in stating that Bangladesh has been one of the biggest development success stories of recent decades and moving to the next stage of development will require a new round of reforms and coordinated efforts between government and major stakeholders including BSEC, BIDA, and private sectors to build a conducive ecosystem for investment.
"Introduction of product diversification in the bourses will ensure increased investor participation. An investor predominantly has the option to take long positions in equity securities through the two major bourses of the country"
Challenges and Solution
To move Bangladesh to the next stage of development, he proposed that constraints in the policy environment and overly restrictive foreign exchange control must be addressed. These are some factors that are holding back investments that would expand Bangladesh’s private sector to a new level of productivity and growth. He further added that the trade and investment policy regime needs to go through a reform to allow global integration and the emergence of a broad-based, competitive private sector. Overcoming these barriers will require significant policy and governance reforms, alongside new investments.
Arif Khan appreciated the steps taken by the new leadership of BSEC that has been tirelessly working to develop a vibrant capital market to facilitate avenues to long-term finance. Work is ongoing to develop a well-functioning government debt market which will help establish a benchmark for pricing other debt instruments. Reforms are also undergoing to stimulate the still-nascent corporate debt market. Meanwhile, the commission has also turned its focus to ensure better governance of the equity market. Developing corporate governance and transparency will help support greater listing and the development of the equity market.
Moreover, the introduction of product diversification in the bourses will ensure increased investor participation. An investor predominantly has the option to take long positions in equity securities through the two major bourses of the country. Adding new types of products such as index funds and exchange-traded funds can attract different types of clients with higher or lower risk appetites.
As an expert in the field of capital market and investment, Khan skillfully identifies that the Bangladesh capital market is geared to close the gap on other frontier markets as it is less correlated with global macro and equity themes creating opportunities for foreign investors looking for diversification and hidden gems. He further added that the return performance of well-governed companies over the last 8 years has yielded CAGR of more than 15%. The Foreign investors holding as a percentage of the total market cap is around 6.3%. The Bangladesh Capital market thus continues to evolve with continuous regulatory reforms, technological upgrades, and the launching of new products that have significant potential to attract Foreign Investors to our capital market.
While discussing the issues on high transaction costs such as custodial charges, trade commissions that can sometimes deter investors to invest in Bangladesh, Khan said that Bangladesh’s custody services market, which is in a nascent stage, has significant room to grow. However, to tap this potential and shape the growth story of the custody services market, the custody service ecosystem needs to attain a certain level of maturity with respect to industry structure, risk management, technology adoption, regulations, etc. This is where, according to Arif Khan, BSEC can help promote an environment that invites more local custody services providers and promotes healthy competition in the industry which may help reduce cost and ensure overall growth of the industry. The local custody services providers can also learn from their global counterparts, adopt the relevant best practices, and take measures to boost investor confidence. There is also room for further reduction of the trade commission.
On the technological front, investment opportunities for custodians remain by focusing on increased operational efficiency through the automation of processes that are still partially manual and particularly repetitive.
Arif Khan CFA, FCMA is the Vice Chairperson of Shanta Asset Management Ltd. Before joining Shanta Asset Management Ltd, Khan was the CEO and Managing Director of IDLC Finance.