Investing in a time of war

Sajid Amit. Sketch: TBS

Let me be clear from the outset about what this article is not: it is not an exercise in irrational exuberance, nor is it a cheerful dismissal of the very real anxiety that investors in Bangladesh's capital market have been carrying for years now.

Until 2026, the Dhaka Stock Exchange has been grinding sideways and downward in a manner that tests the resolve of even the most experienced market participants, and the regional war that has been reshaping oil supply chains, remittance corridors, and global risk appetite has done nothing to make that picture easier to read.

What I want to offer here is something different: a two-phase investment framework that takes the war seriously as a structural variable, that does not pretend it will resolve on any particular timeline, but that also does not treat present-day market conditions as an obstacle to intelligent capital deployment.

The framework rests on a simple idea: while the war continues, you trade; when it ends, or when its ending becomes visible on the horizon, you hold for the long term. Both phases, executed with discipline, can be profitable, and the second phase, in particular, has the potential to generate returns that will look extraordinary in hindsight.

The case for long-term value in the Bangladeshi market is built on a concept that financial analysts call re-rating, which sounds technical but is really just the process by which a market corrects an irrational undervaluation and prices assets closer to their true worth.

Right now, a careful examination of the DSEX reveals a cluster of fundamentally strong companies in banking, pharmaceuticals, telecommunications, and cement trading at price-to-earnings ratios that are genuinely difficult to justify through any serious comparative analysis.

Take the banking sector, where the headline narrative of stress and non-performing loans has painted the entire industry with the same brush, obscuring the fact that certain banks have not only weathered this cycle more cleanly than their peers but have actually outperformed regional banking stocks in terms of return on equity and asset quality.

When you find a bank with strong deposit growth, improving net interest margins, rising digital transaction volumes, and a management team that has navigated regulatory pressure without resorting to creative accounting, and that bank is trading at a price-to-earnings multiple that would be considered a deep-value bargain on the Karachi Stock Exchange or the Colombo Stock Exchange, intellectual honesty simply requires acknowledging that you are looking at mispricing, not structural weakness.

The Pakistan and Sri Lanka comparisons are worth dwelling on because they are often invoked by sceptics as cautionary tales rather than as the instructive precedents they actually are, and the distinction matters enormously when trying to think clearly about Bangladesh's medium-term trajectory.

Both countries went through macroeconomic crises that were, by any measure, more severe than what Bangladesh is currently navigating. Pakistan endured a genuine balance-of-payments collapse, an IMF programme with punishing conditionality, political convulsions of a kind that would have terrified any foreign institutional investor, and inflation that at its peak ran at levels that eroded real purchasing power in ways that are genuinely painful to contemplate. Sri Lanka, of course, went further still, experiencing a sovereign default, fuel queues stretching for kilometres, and a political crisis that ended with citizens storming the presidential residence.

And yet, in both cases, once the macro floor was established, once inflation peaked, once the currency found a level, and once the IMF programme created a credible fiscal anchor, equity markets re-rated sharply and rapidly, rewarding investors who had the patience and analytical courage to buy when the news was at its worst.

Pakistan's KSE-100 gained 64% in the twelve months following the IMF anchor and more than tripled within two years. Sri Lanka's ASPI, after a slower initial recovery, delivered nearly 50% in 2024 alone and had roughly doubled from its crisis lows by year-end. I have a strong conviction that if the war ends in the near-term horizon, oil prices stabilise, inflation declines, and the government is able to cut rates, allowing money from deposits and government securities to move into equities, the DSEX could also rise by around 100%, though perhaps over a longer time horizon.

However, the lesson is not that Bangladesh is guaranteed to follow the same trajectory. The lesson is that markets in this region have a well-documented tendency to undershoot on the downside during periods of stress and to overshoot on the upside during recovery, especially after elections and political stabilisation, and that the window for accumulating positions at genuinely distressed valuations is typically shorter than investors expect.

But why wait at all, one might reasonably ask, if the re-rating thesis is so compelling? The answer lies in the single most important macroeconomic variable connecting the war to the DSEX: oil prices.

The mechanism is not complicated, but it deserves to be spelled out carefully because investors often sense the connection without fully tracing its logic. When oil prices rise, as they do when regional conflict disrupts supply chains, creates insurance premium spikes for tankers, or generates the kind of geopolitical uncertainty that makes commodity traders reach for protective positions, the import bill for a country like Bangladesh, which remains heavily dependent on fuel imports, rises sharply.

That rising import bill feeds directly into the cost of electricity, transportation, and industrial production, which in turn feeds into consumer prices across the entire economy. Headline inflation rises, and when headline inflation rises, the Bangladesh Bank finds itself in the uncomfortable position of having to maintain elevated interest rates to prevent a wage-price spiral and to defend the currency at a level that keeps import costs from getting completely out of hand.

While the war continues, trade the market's volatility. When its end becomes visible on the horizon, stop trading and hold for the re-rating.

High interest rates are the enemy of equity valuations for a reason that is mathematically precise. They raise the discount rate at which future earnings are valued in the present, mechanically compressing price-to-earnings multiples, while simultaneously making fixed-income instruments such as Treasury bills, savings certificates, and term deposits more attractive relative to equities on a risk-adjusted basis.

Money that might otherwise flow toward the stock market instead parks itself in instruments yielding seven, eight, or nine percent without the volatility, and that capital rotation away from equities becomes a structural headwind that no amount of bottom-up fundamental analysis can fully overcome in the short term.

The inverse of this logic is equally precise, and this is where the strategic opportunity becomes visible. When oil prices stabilise, whether because the conflict reaches a ceasefire, because alternative supply routes mature, or because global demand softens enough to absorb the disruption, inflation begins to moderate and the Bangladesh Bank gains the policy space to begin cutting rates.

Rate cuts do two things simultaneously. They reduce the attractiveness of fixed-income alternatives, pushing capital back toward equities, and they expand the price-to-earnings multiples the market is willing to assign to earnings streams, since the same future cash flow is now discounted at a lower rate.

The double effect of capital rotation and multiple expansion, arriving at the same time as the narrative of macroeconomic stabilisation begins to take hold, is exactly the kind of catalyst that produces the sharp, rapid re-ratings we have seen in Pakistan and Sri Lanka. It is also worth noting that Iran's recent willingness to extend oil supply arrangements to Bangladesh represents a meaningful signal in this context, not because Iranian oil solves every energy pricing challenge, but because access to additional supply at non-spot-market terms provides some insulation against worst-case scenarios if the conflict prolongs further.

Remittances, too, deserve a word here because they are a variable that could move in multiple directions depending on how the conflict evolves. Bangladesh's remittance inflows, which are a crucial source of foreign exchange and a significant driver of domestic consumption, are partly generated by workers in Gulf states whose economies are entangled with regional oil dynamics in complex ways.

A scenario in which the conflict causes economic disruption in those host economies could theoretically compress remittance flows, putting pressure on the current account and the currency in ways that complicate the inflation picture. However, there is a strong argument that the inflation-moderation effect of stabilising oil prices would substantially outweigh any remittance softening. The former is a systemic input cost affecting every sector of the economy, while the latter affects a specific consumption channel that, while important, is not the primary driver of equity valuations. The net effect, in a world where oil prices have stabilised, is almost certainly positive for equities even if remittances face some headwinds.

So what does an intelligent investor actually do with all this analysis while the war continues and oil prices remain elevated and volatile? The answer is that you trade in bands, and you do so with a portfolio deliberately constructed to capture upside while limiting downside, organised around two distinct layers of allocation.

The first layer concerns which stocks to hold at all, and the second concerns how much of each position to designate as a trading allocation versus a strategic holding that you will not touch until the macro picture changes.

In terms of stock selection, the framework I would suggest for the current environment involves a small number of high-quality names spread across two or three sectors, chosen specifically because they exhibit the combination of fundamental strength and price defensibility that makes band-trading viable.

Consider holding two banks: one that is broadly defensive, with low volatility, strong institutional support, and a tendency to hold its price level even during broader market weakness (call it Stock A), and one with higher beta, meaning it moves more dramatically in both directions but is fundamentally sound enough that its dips represent buying opportunities rather than warning signs (call it Stock B).

For Stock A, reasonable trading bands might be set between BDT 28 and BDT 34, a range that reflects the floor established by institutional buying and the ceiling at which retail selling tends to emerge. For Stock B, with its higher volatility, bands of BDT 55 to BDT 72 might be appropriate, capturing a wider range while still anchoring to levels that technical analysis suggests have been consistently respected.

Add to this a pharmaceutical name that has the rare quality of being both defensive, because healthcare demand is largely non-cyclical, and re-rating ready, given that the sector's export potential and domestic pricing power appear substantially undervalued at current multiples.

Consider also one telecommunications stock, ideally one with a strong and growing data revenue story. Data usage in Bangladesh is expanding at a rate that the current share price seems entirely to ignore, and this particular stock has shown a pattern of attracting buyers during dips that suggests it enjoys the kind of institutional support that makes technical band-trading more predictable.

The second layer of allocation, how much to trade versus how much to hold within each position, is where discipline becomes the differentiating factor between investors who execute this strategy successfully and those who either over-trade themselves out of a position they should have held or under-trade and miss the income generation that makes sitting through a difficult macro environment psychologically manageable.

A reasonable starting framework is to designate roughly sixty percent of any given position as a strategic holding, shares you will not sell regardless of short-term price movements because they are your vehicle for capturing the re-rating when it eventually arrives, and forty percent as a trading allocation that you actively cycle within your identified bands.

The trading portion generates cash flow and keeps you engaged with the market in a productive way. The holding portion ensures you are not caught flat-footed when the macro trigger arrives and the market moves faster than any trading strategy can track.

One final word on execution. The quality of your brokerage relationship matters more in a band-trading environment than in a trend-following one because the strategy depends on acting quickly at specific price levels rather than simply riding a directional move. A broker who misdirects you with rumour-driven calls will cost you more in this environment than the brokerage fee itself.

The moment to shift from trading to holding, the moment when the second phase of this framework activates, is not when oil prices have fully normalised but when the trajectory of normalisation becomes clear. Markets price expectations, not facts, and by the time CPI data confirms what oil futures have already been signalling for three months, the re-rating will already be substantially underway.

Watch oil. Watch the ceasefire signals. And when both begin to move in the right direction, stop trading your strategic holdings and let them run.

Sajid Amit is a leading development practitioner, academic, investor, and researcher trained at Morgan Stanley, Columbia University, and Dartmouth College.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.