Looks like Barrons has discovered Bangladesh…

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…

Trade Notes: Is it Worth the Trouble Investing in GB Debt?

I first looked into Grameen Bank (GB) almost 3 years ago.  A Deutsche Bank research report in 2007 got us interested in potential MFI (Micro Finance Institution) loan portfolio investments. Continue reading “Trade Notes: Is it Worth the Trouble Investing in GB Debt?”

Background: Bangladesh’s Power Shortage Crisis is Attracting Some very Strange Operators

Note:  I am on vacation.  Patchy internet coverage implies I won’t be doing much heavy writing but I figure I should get rid of some odds & ends and “color” notes I’ve been collecting. “Normal” service should return in a week.  Maybe more. This one is about an interesting — to say the least — encounter I had on a fishing trip in Bangladesh a while ago.  My sources tell me the person and the circumstances haven’t changed much.

Meghnaghat CCGT, Bangladesh

By most accounts, one of the disasters facing Bangladesh is the dire shortage of electric power in the country.  That it doesn’t is testament to the ruling elites’ singular venal incompetence.  The for-profit private sector is rather better at their job and I’ve been sniffing around looking for some investment opportunities for a while.  Public equities in the country are a mug’s game, but the power sector looked interesting because it is that nexus of infrastructure & real assets I love while the investment opportunities were also private. Continue reading “Background: Bangladesh’s Power Shortage Crisis is Attracting Some very Strange Operators”

Trade Notes: Some Tarnish on “India Shining” Might be an Opportunity

RBI head office, Delhi
Image via Wikipedia

Yes, India is most definitely one of the few positive things we could look to in 2010 but there were more than enough warning signs that things might not continue to remain so rosy.  Maoism coupled with the fissiparous nature of Indian politics —based as it is on race, religion, caste, and class — makes government and governance from the center difficult enough.  Rampant corruption in federal & state governments doesn’t help.  Nor does exploitation of that corruption by the large Indian corporates only recently weaned from the vicissitudes (that they so adroitly profited from) of the “Permit Raj.” The demographic advantages that everyone had been touting vis-a-vis China may also be a double-edged sword if not tackled adroitly and with some dispatch. Continue reading “Trade Notes: Some Tarnish on “India Shining” Might be an Opportunity”

Trade Notes: Use Bangladesh’s Bursting Bubble as a Buying Opportunity?

Riot Police Outside the DSE. Source: The Economist

Barton Biggs said that if you were betting on the 100 m sprint, you’d hire an Olympic sprinter because doing it yourself would be stupid.  This was on the way to wondering why, then, do people insist on investing for themselves rather than hiring a professional.  Hence is born the real definition of “retail investor”:  a blithering idiot incapable of taking professional advice.  Mind you, the professionals are not complaining too much because the “greater fool” is a great way to make Continue reading “Trade Notes: Use Bangladesh’s Bursting Bubble as a Buying Opportunity?”

Background: Grameen Bank’s Model Under a Foreseen Threat

Monte Dei Paschi Di Siena

Good old-fashioned partnership merchant banks lending out proprietary money is where banking started (hence the picture of Monte Dei Paschi Di Siena, the oldest surviving bank):  a partnership with long money to lend, taking the risk and the profits of new ventures from the next crop to the next shipload of whatever coming into port.

Modern banks are built around the concept of borrowing short and lending long:  borrow money short-term (from depositors or worse, short-term money markets) and lend long-term.  That’s where the image of the bank (and the banker) becomes critical.  Essentially, banks then become a legally sanctioned Ponzi Scheme: Continue reading “Background: Grameen Bank’s Model Under a Foreseen Threat”

Background: India’s Promise and the Labor Grenade in the Room

We are beginning to see images like this more and more in the financial press, and with good reason.  There is going to be a pretty big imbalance between India and China in terms of working age populations (and it is likely to get worse, given China’s huge male to female ratio imbalance).  In some ways, that presents a massive relative opportunity to India in terms of potential growth.  But India’s inability to provide neither more agricultural productivity and rural employment (where most of the population still lives) nor more factories (where the rural to urban influx could be absorbed) is a major potential headache.  As this story in the FT says: Continue reading “Background: India’s Promise and the Labor Grenade in the Room”