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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

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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 exportdriven 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 lockin 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 nonprofit-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 callout 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. ii. iii. iv. v. vi. vii. viii. ix. x.

Company Act, 1994; Securities and Exchange Ordinance, 1969 as amended in 1993; Securities and Exchange Rules, 1987; Securities and Exchange Commission Act, 1993; Securities and Exchange Commission (Stock-dealer, Stockbroker and Sub-broker) Regulations, 1994 as amended in 1995; Securities and Exchange Commission (Appeal) Regulations, 1995; Guidelines on Initial Public Offing to Local Investors; Guidelines on Foreign Placement or Allotment of Securities; Guidelines on Issuance of Right Shares; and 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. 2. 3.

protection of interest of investors in securities; regulation and development of securities markets; 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. ii.

Stock-Dealer, Stock-Broker and Sub-Broker Amendment Regulations; and Appeal Regulations.

The Commission also developed, after consultation with all concerned, the following regulation: iii. iv. iv.

Insider Trading Regulations; Merchant Banker and Portfolio Manager Regulations; and 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. ii. iii. iv.

Initial Public Offering (IPO) to Local Investors; Foreign Placement or Allotment of Securities; Issuance of Right Shares; and 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.

II.

III.

Government fiscal policy: i. Taxes ii. Government spending iii. Debt management Monetary policy: i. Money supply ii. Interest rates Other i. ii. iii. iv.

factors: Inflation Consumer spending Business investments 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

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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. ii. iii. iv. v.

vi.

3.

What is the nature of the industry? To what extent is the industry regulated? What role, if any, does labor play in the industry? How important are labor unions? How important are technological developments? 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? 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? 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. ii. iii. iv. v.

The competitive position of the company Its composition and growth in sales Profit margins and the dynamics of company earnings The composition and liquidity of corporate resource (the company's asset mix) 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

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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

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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) (ii) (iii) (iv) (v) i.

Liquidity; Activity; Leverage; Profitability; and Market measures.

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).

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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

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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

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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 oversubscribed 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 governmentowned 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.

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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

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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

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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 assets balanced single point in year, or at the

may be thought of as a summary of the firm's against its debt and ownership positions at a time (on the last day of the calendar of fiscal 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.

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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. REFERENCES Agtmael, A.W. van, Emerging Securities Markets, Euromoney publications, London (1984). Ahmed, M. F., "Stock Market Behavior in Bangladesh," Bureau of Business Research, University of Dhaka, Dhaka (1992). Ahmed, M.F., Khan, H.R., Islam, M.S. Industrial Financing Through Capital Market in Bangladesh: A study on the Demand Side, The Asia Foundation and the Bureau of Economic Research, University of Dhaka, (1993). Arowolo, E.A., "The Development of Capital Markets in Africa with Particular Reference to Kenya and Nigeria", IMF Staff Papers, (1971). Bailey, W. and J. Jagtiani. "Foreign Ownership Restrictions and Stock Prices in the Thai capital Market." Journal of Financial Economics, August 1994. _____ and J. Lim. "Evaluating the Diversification Benefits of the New Country Funds." Journal of Portfolio Management, Spring 1992. Bangladesh Bank, Statistics Department, Economic Trends, Dhaka (1992-95). Bangladesh Bank, Annual Report, Dhaka (1993-94). Bangladesh Share Investors Forum, Souvenir 1995. Chuhan, Punam, Stijn Claessesn, and Nlandu Mamingi. 1993. "Equity and Bond Flows to Latin America and Asia: The Role of External and Domestic Factors." mimeo. World Bank. Credit Capital Finance Corporation, Report on Second Round Capital Market Study on Bangladesh, Asian Development Bank, 1989. Claessens, S., and S. Gooptu, eds. Portfolio Investment in Developing Countries, Washington, D.C: International Finance Corporation, 1994. Darrat, A. F. and T. K. Muharjee. 1986.

"Behavior of the Stock

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Market of a Developing Economy."

Economics Letters 22 (2) 273-278.

Dawson, S. M. 1984. "The trend toward efficiency for less developed stock exchanges: Hong Kong." Journal of Business Finance and Accounting 11 (2): 151-161. De la Calle, L.F. 1991. "Diversification of Macroeconomic Risk and International Integration of Capital Markets: The case of Mexico." The World Bank Economic Review 5: 415-436. Demirgiic-Kunt, Ash, and Ross Levine. 1996a. "Stock Market Development and financial Intermediaries: Stylized Facts." World bank Economic Review, vol. 10, no. 2: 291-321.

The

_____. 1996b. "Stock Markets, Corporate Finance, and Economic Growth: An Overview." The World bank Economic Review, vo. 10, no. 2: 223-239. De Santis, Giorgio. 1993. "Asset Pricing and Portfolio Diversification: Evidence from emerging Financial Markets." World bank Discussion Paper 228. Washington, D.C. Dhaka Stock Exchange, Various Issues of Monthly Reviews, Dhaka, Bangladesh. Dhaka Stock Exchange, Monthly Review April 1996, Dhaka, Bangladesh. Divecha, A., drach, j., and Stefek, D. "Emerging Markets: A Quantitative Perspective." Journal of Portfolio Management, Fall 1992. Diwan, I., Errunza, V., and Senbet, L. "Country funds of Emerging economies." in Claessens and Gooptu, 1994. Errunza, V.R. 1979. "Efficiency and the programs to develop capital markets; The Brazilian experience." Journal of Banking and Finance 3 (4): 355-382. _____ and E. Losq. 1985a. "International asset pricing undermild segmentation: Theory and Tests." Journal of Finance 40 (1): 105-124. _____. 1985b. "The Behavior of stock Prices on LDC markets." Journal of Banking and Finance vol. 9: 561-75. _____ and B. Rosenberg. 1982. "Investment in Developed and Less Developed Countries." Journal of Financial and Quantitative Analysis 17 (5): 741-762. Geyikdaki, Y.M., and N.V. Geyikdaki. 1989. "International diversification in Latin America and the developing counties." Management International Review 29 (3): 62-71. Harvey, Cambell R. 1995. "The Risk Exposure of Emerging Equity Markets." The World Bank Economic Review Vol. 9, no. 1: 19-50. IFC, Emerging Stock Market Factbook. Washington D.C: International Finance Corporation, 1996. IFCAS Continuing Education, Managing Emerging Market Portfolios, Charlottesville, VA: Association of Investment Management and Research, 1994.

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International Monetary Fund. CD-Rom September 1996.

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Levine, Ross and Sara Zervos. 1996. "Stock market Development and Long-Run Growth." The World Bank Economic Review, vol.10, no. 2: 323-339. Islam, M.M. "Diversification Benefits of Investing in Emerging Securities Markets: Evidence from Asia," Journal of Business and Society, Vol. 7, No. 2, 1994, pp. 217-229. Islam, M.M. and A. Rodriguez. "Evidence on the Benefits of Portfolio Investment in Emerging Capital Markets in Latin America," International Finance in The 21st Century, forthcoming, edited by James C. Baker, publisher: The Pragamon Press. Khambata, F., and D. Khambata. 1989. "Emerging capital markets: A case study of equity markets in India". The Journal of Developing Areas 23: 125-138. Lessard, D.R. "International Portfolio Diversification: A Multivariate Analysis for a Group of Latin American Countries," Journal of Finance, June 1973. Meier, J., 1994. "A Comparison of Emerging Markets Benchmarks," Journal of Investing. Summer. 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). Ministry of Law, Justice and Parliamentary Affairs, Bangladesh 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. ed. Keith K.H. Park and Antoine W. Van Agtmael. Probus 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. Stock markets, Chicago: Probus. 1993.

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Plionios, Dimitri A., "LDCs Privatization, Program, Trends", Euromoney (Privatization Supplement): 14-15, (July 1990). Ramos, J. 1988. The rise and fall of capital markets in the southern cone, in M. Urruti (Ed.), Financial Liberalization and the Internal Structure of Capital Markets in Asia and Latin

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Issues

============================================================================== 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

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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 Investment

12.7

13.8

15.4

Private

7.0

7.6

8.5

Public

5.7

6.2

10.5

12.0

National Saving

17

18.1

18.7

19.2

19.3

12.3

16.6

19.3

9.8

10.5

10.8

11.1

11.1

6.2

9.4

11.1

6.9

7.2

7.6

7.9

8.1

8.2

5.8

7.2

8.2

12.9

13.9

14.3

14.4

14.4

14.5

7.8

13.5

14.6

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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 Budget Revenue

12.1

12.4

12.6

12.8

13.0

13.3

13.7

10.3

12.6

13.9

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) Mutual Fund (MF) Debentures (DB) Shares, MF, Certificates, DB of all listed SEC Share of listed Companies (SLC) Certificates of all MF (CLMF) Debenture (DB) Issued Capital of all Listed SEC (IKLE) Issued Capital of all COM (IKCO) Issued Capital of all MF (IKMF) Issued Capital of all DB (IKDB) Market Capitalization of all SEC (MKLS)

148 6 7

183 7 11

23.65 16.67 36.36

224,294,000

364,066,923

38.39

222,946,899

362,007,819

62.37

950,000 397,104

1,250,000 809,104

31.58 103.75

257,528,991

540,413,526

109.85

231,690,491

482,014,366

108.04

2,375,000

3,125,000

31.58

23,463,500

55,274,160

135.58

922,126,107

1,475,799,633

60.24

Market Capitalization of all COM (MKCO) 850,151,295 1,470,896,833 73.02 Market Capitalization of all MF (MKMF) 46,575,000 11,717,863 -74.84 Market Capitalization 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,

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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 ------------------------------------------------------------------------------

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Total issued Capital of all Companies Total issued Capital of all Mutual Funds Total issued Capital of all Debentures

TK. US$ TK. US$ TK. US$

19,280,574,630 482,014,366 125,000,000 3,125,000 2,210,966,400 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 -----------------------------------------------------------------------------Source: Securities and Exchange Commission, Annual Report 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

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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 -----------------------------------------------------------------------------Source: Securities and Exchange Commission, Annual Report 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 -----------------------------------------------------------------------------Source: Monthly Review, Dhaka Stock Exchange Ltd., April 1996. 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) -----------------------------------------------------------------------------Source: Securities and Exchange Commission, Annual Report 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

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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 -------------------------------------------------------------------------------------Source: Securities and Exchange Commission, Annual Report 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 -----------------------------------------------------------------------------------Source: Securities and Exchange Commission, Annual Report 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 -------------------------------------------------------------------------------Source: Monthly Review, Dhaka Stock Exchange Ltd., April 1996. TABLE 6.B STOCK MARKET OPERATIONAL STATISTICS (JULY 1994 - JUNE 1995) ==============================================================================

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Month

Total Turnover (No. of securities)

Total Amount Traded (Mil dollar)

Market Capitalization (Mil dollar)

Change in Market Capitalization (%) -----------------------------------------------------------------------------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 -----------------------------------------------------------------------------Source: Securities and Exchange Commission, Annual Report 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 -----------------------------------------------------------------------------Source: Business Independent, May 31, 1996.

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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 -----------------------------------------------------------------------------Source: Business Independent, May 31, 1996. 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% -----------------------------------------------------------------------------Source: Monthly Review, Dhaka Stock Exchange Ltd., April 1996. 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 ------------------------------------------------------------------------------

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Source:

Business Independent, May 31, 1996.

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% -----------------------------------------------------------------------------Source: Business Independent, May 31, 1996. TABLE 7.G DSE, MAY 30--AT A GLANCE ============================================================================== All Share Price Index 864.86779 Tot. Mt. Cap. (Tk) Day's Change in Index

5,872,44.09.251.99

(-)1.4855% Tot. Mt. Cap. (US$)

Tot. Turnover (Tk.)

146,81,10,231.30

38,969,497 Tot. No. of Listed Securities

Tot. Turnover (No.)

201

255,782 Tot. No. of Share Issues

Day's Howlas (Trades)

183

915 Tot. No. of Mutual Funds

Day's Issues Traded

7

95 Tot. No. of Debentures Issues

Issues Gained

11

23 Tot. No. of Shares & Deb.

Issues Incurred Loss

366,407,283

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 ------------------------------------------------------------------------------

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CSE, MAY 30--AT A GLANCE -----------------------------------------------------------------------------All Share Price Index 398.81 Issues Incurred Loss Day's Change in Index

-0.0328% Issues Unchanged

Tot. Turnover (Tk.)

0

229,735.00 Tot. Mat Cap. (Tk)

Turnover (No)

33,097,593,178.00

835 Tot. No. of Listed Securities

Day's Howlas (Trades)

71

17 Tot. No. of Shared Issues

Day's Issues Traded (Boldtype)

64

6

Tot. No. of Mutual Funds Issues Gained

4

7

2 Tot. No. of Debenture Issues

0

-----------------------------------------------------------------------------Source: Business Independent, May 31, 1996. 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 -----------------------------------------------------------------------------Source: Monthly Review, Dhaka Stock Exchange Ltd., April 1996. 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

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5 Rupan Oil 116090.00 -13.39 7.80 5.00 -----------------------------------------------------------------------------Source: Monthly Review, Dhaka Stock Exchange Ltd., April 1996. 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 -----------------------------------------------------------------------------Source: Securities and Exchange Commission, Annual Report 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 -----------------------------------------------------------------------------Source: Securities and Exchange Commission, Annual Report 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

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5. 6. 7. 8.

Bengal Biscuits Ltd. Dynamic Textile Industries Ltd. Northern Jute Manufacturing Co. Ltd. Mala Chemical & Pharmaceutical Ind. Ltd.

0.09 0.45 0.02 0.25

0.02 0.34 0.01 0.15

33.33 76.85 60.00 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.

C.

D.

Market Capitalization 1) In taka 2) In U.S. dollars

1,211 48

Trading Value 1) In taka 2) In U.S. dollars 3) Turnover ratio

----

Local Index 1) DSE All Share Price Index (1985=100) 2) Change in index (%) 3) P/E ratio

----

2,256 87

3,493 113

10 0.4 0.6

----

32 1.1 1.1

----

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5,731 186

12,635 405

48 1.6 1.0

178 5.8 1.9

244.4 144.4 6.80

512.3 109.6 21

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4) P/BV ratio 5) Dividend yield (%)

---

---

---

1.00 9.30

2 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.

C.

D.

Market Capitalization 1) In taka 2) In U.S. dollars

13,557 430

15,351 476

11,486 321

10,397 269

12,299 315

Trading Value 1) In taka 2) In U.S. dollars 3) Turnover ratio

130 4.1 1.0

174 5.4 1.2

195 5.6 1.5

116 3.2 1.1

438 11.2 3.9

Local Index 1) DSE All Share Price Index (1985=100) 2) Change in index (%) 3) P/E ratio 4) P/BV ratio 5) Dividend yield (%)

533.6 4.2 8 2 7

467.8 -12.3 23.9 1.1 4.4

350.8 -25.01 13.7 1.1 7.3

296.3 -15.54 9.5 0.9 7.7

369.6 24.74 10.6 1.5 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

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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

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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 |

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| ----------------------------------------------------------------| | | | | | | | 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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