Are you ready to discover the top-performing asset class of 2022 in the midst of an uncertain economy in Bangladesh? The year 2022 has been a rollercoaster ride for investors, with many asset classes struggling to beat the inflation rate. But, do you know which two assets have emerged as the ultimate winners, offering returns higher than 20%? Yes, you read it right! US Dollar and Gold were the top performing assets in the year of full ups and downs in Bangladesh. However, what sets them apart from the rest? Why were they able to generate such high returns while others were struggling? Continue Reading as we examine other asset classes' performance of the year 2022 and get ready to be amazed by the insights we have in store for you!
US Dollar
In Bangladesh, the US dollar was the top performing asset in 2022 with a return of 24.99. The price of the US dollar is increasing in Bangladesh due to several factors. One main factor is the interest rate hike by the US central bank, which has strengthened the dollar against most currencies. Additionally, the ongoing Russia's war in Ukraine and global sanctions on Russia have also contributed to the strengthening of the dollar. In Bangladesh, the local currency has lost value by at least 18% since early June due to a shortage of US dollars, caused by an increase in import bills as the economy recovers from the coronavirus pandemic. As a result, the price of the US dollar in Bangladesh increased from 85 taka to 107 [1] taka over the course of the year. Consider the fact that although the US dollar provided the highest return in 2022, investing in dollars is unlawful and no one can legally own more than $10,000 in dollars at any given time.
Gold
In 2022, gold was the second-best performing asset in Bangladesh, returning 22.02%. The price of gold per gram in Bangladesh increased from 5041.83 taka to 6151.8 [2] taka during the year, with the devaluation of the taka being a major contributor to this increase. Gold is often seen as a safe-haven asset, and when there is uncertainty in the government or financial market volatility, demand for gold tends to increase. This was the case in Bangladesh in 2022 as the foreign exchange reserve slipped below $33 billion [3] and the World Bank lowered growth projections, leading to increased uncertainty among investors who turned to gold as a stable investment option. Additionally, fear of recession following several hikes in US Fed rate dampened interest in risky assets. While the reopening of China's borders is supporting jewelry demand, its overall impact on the gold market is expected to be limited.
Expat Bonds
US Dollar Premium Bond, US Dollar Investment Bond and Wage Earner Development bond used to offer 6.5%, 5.5% and 10% [5] respectively, regardless of any holding year. According to the Bangladesh Bank, net investment by Bangladeshi expats in three government bonds declined by $49 million [6] from January to October 2022. This decline is attributable to a decline in premium security offerings in the context of a volatile market and lower yields on these bonds.
In April, Bangladesh changed the interest rates and investment limits for Expat bonds. For the US Dollar Premium Bond, at maturity after three years, the interest rate is 5.5% for investments up to $100,000, 4.6% for investments between $100,001 and $500,000 and 3.5% for investments over $500,000. The US Dollar Investment Bond pays 5% interest for investments of $100,000 after maturity, 4% for $100,001 to $500,000, and 3% for investments over $500,000.
The decline of the yield and investment limits on these bonds, in conjunction with the simultaneous emergence of bond gains on the global market, are contributing factors that have led to a decline in expat bond investments.
|
Federal Fund Rate (USA) |
||
|
FOMC Meeting Date |
Rate Change (bps) |
Federal Funds Rate |
|
2022-12-14 |
50 |
4.25% to 4.50% |
|
2022-11-02 |
75 |
3.75% to 4.00% |
|
2022-09-21 |
75 |
3.00% to 3.25% |
|
2022-07-27 |
75 |
2.25% to 2.5% |
|
2022-06-16 |
75 |
1.5% to 1.75% |
|
2022-05-05 |
50 |
0.75% to 1.00% |
|
2022-03-17 |
25 |
0.25% to 0.50% |
As the US Federal Funds Rate rises, investors may switch to US dollar bonds for higher returns [7]. When interest rates rise, bond prices fall and yields rise, making domestic bonds more appealing to investors. As the numbers show, people are less likely to buy expat bonds in Bangladesh because investors may prefer US bonds with higher returns.
Sanchayapatra
|
Saving Security Name |
Year-Slab |
Definite return |
up to 15,00,000 taka |
15,00,001-30,00,000 |
Above 30,00,000 |
|
5-Year Bangladesh Sanchayapatra
|
1st year |
9.35% |
9.35% |
8.54% |
7.71% |
|
2nd year |
9.80% |
9.80% |
8.95% |
8.08% |
|
|
3rd year |
10.25% |
10.25% |
9.36% |
8.45% |
|
|
4th year |
10.75% |
10.75% |
9.82% |
8.86% |
|
|
5th year |
11.28% |
11.28% |
10.30% |
9.30% |
|
|
3 Months Interest Bearing Sanchayapatra
|
1st year |
10.00% |
10.00% |
9.06% |
8.15% |
|
2nd year |
10.50% |
10.50% |
9.51% |
8.56% |
|
|
3rd year |
11.04% |
11.04% |
10.00% |
9.00% |
|
|
Pension Sanchayapatra
|
1st year |
9.70% |
9.70% |
8.87% |
8.04% |
|
2nd year |
10.15% |
10.15% |
9.28% |
8.42% |
|
|
3rd year |
10.65% |
10.65% |
9.74% |
8.83% |
|
|
4th year |
11.20% |
11.20% |
10.24% |
9.29% |
|
|
5th year |
11.76% |
11.76% |
10.75% |
9.75% |
|
|
Family Sanchayapatra
|
1st year |
9.50% |
9.50% |
8.66% |
7.83% |
|
2nd year |
10.00% |
10.00% |
9.11% |
8.25% |
|
|
3rd year |
10.50% |
10.50% |
9.57% |
8.66% |
|
|
4th year |
11.00% |
11.00% |
10.03% |
9.07% |
|
|
5th year |
11.52% |
11.52% |
10.50% |
9.50% |
Sanchayapatra, a risk-free investment asset provided by the Bangladesh Government, had been a popular option among savers as it offered a return of 9-11% [8], which is higher than the current inflation rate of 8.71%. However, recent changes in policies and regulations have resulted in a decline in the sales of savings certificates. The government has implemented new conditions for the popular savings tool, including the mandatory filing of income tax returns for investments over Tk 500,000, which has caused many savers to turn away from Sanchayapatra. Additionally, the government has lowered the interest rate on savings certificates and introduced several tiers, further reducing its appeal among investors. A delegation of the International Monetary Fund (IMF) recently recommended that the interest rate on savings certificates should be close to the market rate [9], and the government is considering this recommendation, which may lead to further lowering of the interest rate. As a result, many savers are now looking for alternative investment options that do not have these added conditions and offer returns that are more competitive.
Stock Market
The stock market in Bangladesh had a negative return of 8.20% [10] in 2022, underperforming other major asset classes due to recessionary global forecasts, unresolved Ukraine issue, pre-election concerns, banking sector problem, tightening money market, devaluing Taka, and pressured forex reserve . Bangladesh's stock market had a tumultuous 2022, with losses in the recent trading session. Jute and travel-leisure sectors returned over 70% to investors, while general insurance firms lost 33% [11]. Most sectors lost capital last year. After two strong winning years during the pandemic, the market expected natural corrections and recoveries, but the Ukraine war at the end of February devastated it. Floor price restrictions dried up secondary market liquidity, not healing the market. The DSE fell 8.2% to 6,207, and the blue-chip index DS30 fell 13.3%.
Open-end mutual Fund
While the stock market saw negative returns of 8.20% and the inflation rate is at 8.71%, investing in mutual funds such as IDLC Income Fund, EDGE High Quality Income Fund, CWT Emerging Bangladesh First Growth Fund, and Ekush First Unit Fund provided a positive return for investors. These funds generated returns of 6.45%, 5.80%, 2.21%, and 0.34% [12] respectively. Mutual funds offer diversification across multiple stocks and sectors, which can help to reduce the risk of investing in the stock market. Individual Professional fund managers who make investment decisions based on market research and analysis also manage them beside, by investing in mutual funds, individual can benefit from tax brackets by potentially lowering his overall tax liability. Additionally, the returns of the mutual fund are not determined by the stock market performance alone. It is a choice of diversification and professional management with different strategies, which make it a good option for investors looking for a way to grow their money.
Bank Deposit
Many individuals put their money in bank deposits because they are thought to be secure and risk-free. However, the highest deposit rate offered by any bank is just 7%, which is 24.42% lower than the inflation rate.
In August 2022, when inflation was approximately 9%, banks offered deposit rates below 7%. As strong inflation eroded people's ability to save, term deposits, which account for over half of all deposits in the banking system, grew by 7% in September, compared to 11% in September of the previous year [13]. BB data indicates that private sector deposits, which accounted for 93% of total funds, declined 3% annually and 1% from the previous quarter [14]. As the bank was compelled to maintain a 6% interest cap on deposits, a segment of savers relocated their investments to alternative markets, mostly real estate. Due to extremely low interest rates that were unable to keep up with inflation, many individuals avoided bank savings.
Also, you can use Takainvest web to compare historical deposit and lending rates of different banks and determine the best bank option for your financial decision.
In conclusion, the investment market in Bangladesh has been facing various challenges such as devaluation of the taka, decline in foreign exchange reserve, and global economic concerns. However, despite these challenges, certain asset classes have managed to generate returns higher than the inflation rate, which is encouraging. As we move into the upcoming year, it is important to keep in mind that the market conditions may remain uncertain. Therefore, it is vital to stay informed and carefully assess the available information in order to make informed investment decisions. As an investor, it is essential to diversify your portfolio, seek professional advice, and be ready to adapt to the changing market conditions. With the right approach and a well-planned strategy, you can navigate the market uncertainty and achieve your financial goals in 2023.