Bangladesh remains a paradox among frontier markets: its GDP growth trend is one of the most stable in the region, but it has high levels of asset price volatility. It proved to be one of the economies least affected by the global financial crisis, with GDP growth only slowing from 6.3 per cent in 2008 to 5.9 per cent in 2009 as the country benefited from the so-called “Walmart Effect” of increased demand for cut price garments in recession-hit economies.
While this was a source of some comfort and relief to policymakers, it also helped to inflate an asset price bubble. Managing this may be the biggest macro challenge for the country in 2011.
Underscoring the rush of enthusiasm for Bangladeshi equities, the DGEN, the Dhaka Stock Exchange’s benchmark index, has been up over 95 per cent in the year to date. Although it then fell almost 9 per cent in two weeks earlier this month, it remains comfortably one of the best performing stock markets in the world since 2007, outpacing both the Bric countries and the MSCI Frontier Markets Index.
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