Valuation experts and also the CFA textbooks mention that it might be unwise to use to regression beta for emerging and frontier markets. There are quite a number of reasons as to why they are advocating this. I just wanted to quickly show readers how I use bottom up betas for countries like Bangladesh.
My logic is pretty simple.
1. I try to assign a beta of close to or below ‘1’ for the very large cap names. For e.g. I would probably use close to ‘1’ or less for Grameenphone which has the largest market cap in Bangladesh.
2. The other element in place is risk. Companies with higher business, operating and financial risk should have higher betas. For example a consumer staple would have less beta than a consumer discretionary which would see earnings volatility if business cycle is volatile.
I could have written much more on this topic. However, it is much easier to read what the real guru “Aswath Damodaran” has to say on the subject.