Looks like Barrons has discovered Bangladesh…

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Bangladesh RMG Factory

Barrons’ Devendra Joshi seems to have discovered Bangladesh.  Cue rueful smiles from anyone who’s tried to sell Bangladesh and been rebuffed by people who would  have rather invested in (I shit you not):  Kurdish oil companies, Ukrainian debt, Greek debt…

A lot of the stuff he says are blindingly obvious to regular denizens of frontier markets.  Nuggets like,

Remittances provide a source of income for many families…

…with a gross national income per capita of USD1,046, Bangladesh broke into its “lower middle-income” category in July 2015. …

But I have more fundamental problems with this report:

  1. He is focusing on equity plays based on the undeniably good macro story.
    1. I have found it well nigh impossible to properly correlate the two as an investor.  I think there probably still are quotes lying around from Soros rueing how difficult that play really is.
    2. It is actually doubly difficult in Bangladesh because the equity market doesn’t reflect the powerhouses of the economy.  The really well-run companies are very closely held public or completely private.
    3. Oh, and let’s not forget that the banks, some of the largest bloc holders of equity, are being forced to offload their equity holdings per Basle rules.
  2. He is talking up the consumer story.  Everything consumer I have found in Bangladesh is focused on the affluent or super-affluent consumer in Bangladesh.  The few who do cater to middle class consumers (where the real long money is) are
    1. private like Square Food and Beverage.  Great products and consumer brand image.  You could play through the “parent” Square Pharmaceuticals but that is a market darling and they don’t need outside money.
    2. bloody dangerous like Pran Foods.  Hugely profitable, a darling of foreign investors like the IFC but a disaster waiting to happen, considering huge debts and a tendency to play fast & loose with product quality
  3. He does like the banks.  That’s not such a bad idea, only (as he rightly points out) they have looming NPL bombs.  However, the good banks (and the bad) are running up against Tier I & II stoppers and quiet a few of them have asked us to raise funds.  You’d be surprised how may people are interested in that kind of paper….
  4. He doesn’t mention the RMG sector much.  Ready Made Garments (factory disasters notwithstanding) manufacturers are the country’s growth engine.  They are almost all privately held and, unless you want to buy Square Textiles, the public ones are not worth the time.  Just one, Mohammadi Group run by Rubana Huq, has revenues in the USD 200 million range and is completely private.

Of course, if you really want to make money in Bangladesh, you have to do it the “old fashioned way:” by investing in proper operating companies that make real products.  Call me if you care…

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RBI head office, Delhi
Image via Wikipedia

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Riot Police Outside the DSE. Source: The Economist

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Monte Dei Paschi Di Siena

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