Asif Khan, CFA
We see 2014 to be very important in deciding the future of the country and politics could play a major role in that. Economic activity in terms of investment, credit growth, import etc is likely to be subdued at least till the first half of the year. On the bright side, the strong foreign exchange reserve minimizes the risk of a currency crisis, while relatively benign inflation will allow space for monetary stimulus. Furthermore recent developments in the political arena indicate that the worst case scenario is a low possibility as the opposition has called off strikes till further notice. Despite a relatively mixed outlook in terms of economy, we do expect total corporate earnings of the listed universe to show growth after three consecutive down years (primarily due to financial sector earnings drop). However, the 12M trailing P/E multiple of 18.2x indicates that some of this growth has already been discounted in the market. A quicker resolution to the political stalemate will be an upside risk in our view. Things to observe carefully would be the 1. Political developments 2. Health of the banking sector and also the 3. RMG sector which came under increased scrutiny in 2013.
2014 was supposed to be the year of opportunity where the stock market would finally get out of the 3 year long bearish run which saw the market fall by around 50-60%. It was supposed to start with election related festivities which usually bring a lot of hope and excitement. Unfortunately for us, the lack of progress on negotiations between the major parties has put in a dampener right at the beginning of the year. The 10
general election faced a credibility problem as the main opposition BNP decided to boycott it. Now everybody is looking towards how the political situation evolves as it is the deciding factor for the long term growth trajectory of the country. As politics is the centerpiece of this report we will first give an update on the political scenarios and their implications. Then we will take a quick look at the 2013 macroeconomic performance and provide an outlook for 2014 along with the implications for the market.
A positive shift in politics observed
The recent developments in the political arena have some clear positives and we feel that the worst case scenario has been averted. Businesses and the economy will see a breathing space as the opposition has changed their strategy of continuous strikes and blockades. Meanwhile the ruling party also has strong incentives to win back the people through good governance before another election.
Earnings recovery anticipated after three down years
Macroeconomic and Strategy Report January 15, 2014
2 7 - J a n - 1 3 1 0 - F e b - 1 3 2 4 - F e b - 1 3 1 0 - M a r - 1 3 2 4 - M a r - 1 3 7 - A p r - 1 3 2 1 - A p r - 1 3 5 - M a y - 1 3 1 9 - M a y - 1 3 2 - J u n - 1 3 1 6 - J u n - 1 3 3 0 - J u n - 1 3 1 4 - J u l - 1 3 2 8 - J u l - 1 3 1 1 - A u g - 1 3 2 5 - A u g - 1 3 8 - S e p - 1 3 2 2 - S e p - 1 3 6 - O c t - 1 3 2 0 - O c t - 1 3 3 - N o v - 1 3 1 7 - N o v - 1 3 1 - D e c - 1 3 1 5 - D e c - 1 3 2 9 - D e c - 1 3 1 2 - J a n - 1 4
Turnover (BDTmn) (RHS)DSEX (LHS)
Index DataCurrent Index
4,49452 week High4,49452 week Low3,4392013 Return*5.20%Market Cap (BDT mn)2,754,034Market Cap (USD mn)34,861 ADTV in 2013 (USD)51
Market and Turnover