Market P/E (X) : Year Avg. Daily Turnover : USD Million Market Cap to GDP Ratio : 21%

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1 Market P/E (X) : Year Avg. Daily Turnover : USD Million Market Cap to GDP Ratio : 21% Bangladesh Capital Market Commentary: Bangladesh equities market continued to exhibit a resilient performance during CY17. Subsiding macro risks, benefited by weaker oil/commodity prices followed by multi-year low inflation rate, and lower interest rate have all been factors. The market posted a positive return of 5 percent in CY 13 and 9 percent in CY 14 and proclaimed its turnaround by establishing investor confidence. In 2017, the capital market posted the highest return since 2010 of 24 percent. DSEX, the prime index of Dhaka Stock Exchange (DSE), broke its psychological barrier of 6,000 index points since its inception in Market participation by both retail and institutional investors has also increased substantially this year as depicted by a 71 percent in average daily turnover Y-O-Y. This year average daily turnover stood at USD 108 million which is the highest after CY The main driving forces behind the index movement were financial stocks. Market capitalization to Gross Domestic Product (GDP) ratio stood at just over 21 percent in 2017, an 8 percent increase Y-O-Y. Total market capitalization reached USD 52 billion in 2017 which was USD 44 billion in the preceding year, thus posting a 20 percent yearly increase. Foreign participation in Bangladesh capital market also witnessed a surge in Net overseas investment at DSE amounted to USD 211 million, up 27 percent from previous year. Moreover, foreign investors turnover in DSE was USD 1,413 million in 2017 posting 31 percent growth Y-O-Y. Market Performance for CY ,500 Bangladesh Market Price to Earning multiple (x) 33 6,250 6,000 5, ,500 5,250 5,000 1/Jan/17 1/Feb/17 1/Mar/17 1/Apr/17 1/May/17 1/Jun/17 1/Jul/17 1/Aug/17 1/Sep/17 1/Oct/17 1/Nov/17 1/Dec/ Source : ACAML Research and Dhaka Stock Exchange 1

2 Market Capitalization (USD billion) Daily Avg. Turnover (USD million) Foreign Investment Details (USD million) USD Million Buy Sell Net Source : ACAML Research and Dhaka Stock Exchange 2

3 Foreign Participation (USD million) Market capitalization to GDP (%) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 43.17% 26.48% 28.03% 22.34% 20.11% 19.66% 20.88% 19.73% 21.38% Peer Market Capitalization to GDP (%) 250% 230% 200% 184% 150% 100% 74% 67% 93% 112% 119% 50% 0% 21% Bangladesh India Taiwan Srilanka Philippines Thailand Singapore Malaysia Source : ACAML Research and Dhaka Stock Exchange 3

4 Key Factors behind the market surge of CY 2017: One of the big drivers of the stock market swell since January 2017 has been monetary policy and current low interest rate regime: in specific, the money easing policy of Bangladesh Bank and the low interest rates. Deposit rate now 5 percent which was 6 percent in As a result, a lot of money chased better returns in the stock market. Lending rate now 10 percent which was 11 percent in 2016 (that means listed companies financial expense will reduce which reflect on earnings in future) Bangladesh taka devalue against dollar 5 percent from January 2017 to December 2017, as a result exporter gets benefit of this and boost up top line income. Private sector credit growth stood at 19 percent in November, 2017 far beyond the target of 16 percent set by the Bangladesh Bank thus posting a 22 percent increase over the year, as a result companies are expected to generate greater returns from extended investments. Net foreign investment amounted to USD 211 million, up 27 percent from Main reason behind this surge is that most of the developed markets hit all time high, so fund managers are looking to diversify their fund. Although only some 7 percent of the country s current population can be classified as middle income or affluent, compared with 38 percent in Indonesia, MAC Bangladeshis will account for around 17 percent of the population by Tremendous growth opportunities will unfold over the coming decade; most of the companies now approach this market which increased companies earnings potentiality in future. 4

5 Looking Forward: Strategy for 2018 Resilient domestic growth: We forecast the Bangladesh economy should grow more than +7 percent in FY 2017 despite the current world economy slowdown-and +7.5 percent in FY 2018, supported by higher export earnings and ever-increasing migration came up with expected growing remittances. Earnings growth and visibility: Corporate earnings have grown by a healthy CAGR of 21 percent over the last 5 years assisted by the inclusion of some heavy earning industry in the market like telecom, fuel and the strong earnings growth of banking and nonbanking financial sectors. Earnings growth is likely to remain strong in the coming year once again led by the banking sector which accounts for 20 percent of the market capitalization along with steady growth from energy companies as well as selected pharmaceuticals, cements and food companies. Valuation: Bangladesh equity market currently trades at 15x forward earnings, which is less than 1 standard deviation rich versus its 17.8x historical average. At 15.00x 2018 earnings, the market is trading at discount to most established regional market. This higher P/E of in 2010 was mainly due to the mismatch of opine demand and limited supply of the script in the market. Narrow Spread of Lending-Deposit Rate: From historical data we show that there is an inverse relationship between a high bank deposit rate and lower fund flows to the stock market, which was clearly the case in as monetary tightening, and provision growth led to higher deposit rates for fund mobilization. Now the spread is below 5 percent so we may see fund flow to capital market in the upcoming year for higher return. Bangladesh in the Eye of Specialists: Goldman Sachs expects that, within the next 50 years, 5 of the G-7 nations will be replaced by emerging economies. Many of these economies have large population, cheap labor and high levels of productivity. The Bangladeshi economy possesses these characteristics, leading Goldman Sachs to include the country in its list of The Next Eleven (or N-11) - economies that are expected to have a high potential for driving the global growth in the 21st century. Similarly, Citi Group has also included Bangladesh in its list of 3G (Global Growth Generator) countries. Bangladesh Capital Market Cheapest in the Region: The inflation has picked up recently but still Bangladesh has the cheapest labor wage (half of what it is in India & Pakistan) amongst the South East Asian nations. Therefore, we do not see any reason for Bangladesh to not achieve a +7 percent GDP growth; in fact we foresee a GDP growth rate of +8 percent in the next 4-5 years. Upturn in the earnings cycle, increased foreign participation, status quo on sovereign ratings and positive expectations over the introduction of ETF Fund, future & commodity market caused equity values will be rebound strongly to upward trajectory. 5

6 1 USD = BDT 78.00, base year Macro Snapshot FY 12A FY 13A FY 14A FY15A FY 16A FY 17A GDP (USD Bn) GDP Growth Rate (%) 6.52% 6.01% 6.06% 6.55% 7.11% 7.24% Agriculture (as % of GDP) 17.38% 16.78% 16.50% 15.96% 15.35% 14.79% Manufacturing (as % of GDP) 28.08% 29.00% 29.55% 30.42% 31.54% 32.48% Services (as % of GDP) 54.61% 54.22% 53.95% 53.62% 53.12% 52.74% Private Investment (as % GDP) 22.50% 21.75% 22.03% 22.07% 23.00% 23.01% Public Investment (as %GDP) 5.76% 6.64% 6.55% 6..82% 6.70% 7.25% Per Capita GDP in USD 955 1,054 1,184 1,317 1,389 1,493 Revenue Collection (USD Bn) Total Revenue as % of GDP 9.50% 10.45% 10.79% 11.18% 10.24% 11.98% Total Expenditure as % of GDP 14.70% 15.30% 14.01% 15.83% 15.27% 16.21% Fiscal Deficit as % of GDP -3.70% -3.70% -3.85% -3.85% -4.50% -5.00% Remittance (USD Bn) Exchange Rate (BDT/USD) Export Growth (%) 6.00% 11.20% 11.70% 3.35% 9.81% 3.22% Import Growth (%) 5.50% -4.00% 19.40% 5.00% 6.11% 10.2% Current Account Balance/ GDP (%) -0.03% 2.00% 1.00% 0.04% 1.57% -0.59% Forex Reserve (USD Bn) CPI (%) M2 growth (%) Domestic Credit Growth (%) Branch of Bank 8,059 8,427 8,794 9,131 9,410 9,654 Domestic Debt as % of GDP 17.70% 18.30% 18.70% 19.01% 19.90% 20.10% External Debt as % of GDP 22.17% 20.23% 20.44% 20.09% 19.98% 19.58% Total Debt as % of GDP 39.87% 38.53% 39.14% 39.10% 39.88% 39.68% 6

7 Disclaimer: Estimates and projections herein are our own and are based on assumptions that we believe to be reasonable. Information presented herein, while obtained from sources we believe to be reliable, is not guaranteed either as to accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any security. This report is intended for distribution in only those jurisdictions in which Alliance Capital Asset Management Ltd. is liable and any distribution outside those jurisdictions is strictly prohibited. Qazi Salman Ghyas Chief Investment Officer salman@acaml.com.bd Alliance Capital Research Team Analyst Designation Contact no. Hasib Anwar Head of Research Hasib@acaml.com.bd Benazir Rahman Senior Investment Analyst Benazir@acaml.com.bd Nicholas Dipta Gomes Investment Analyst Nicholas@acaml.com.bd Bristy Rani Ghosh Research Associate Bristy@acaml.com.bd Alliance Capital Asset Management Limited Sima Blossom Plot # 390 (Old) 03 (New) Road # 27 (Old) 16 (New) Dhanmondi C/A, Dhaka-1209 Bangladesh Tel: + 88 (02) Fax: +88 (02) info@acaml.com 7