This paper Sunday last ran a report on its front page highlighting the failure of Bangladesh to secure even a tiny slice of the global equity fund. The flow of such funds across the globe is now quite high.
The flow of equity funds, according to the FE report, is now directed in large volumes to emerging economies and frontier markets. But Bangladesh, generally recognised as a leading frontier market, is yet to become a coveted destination for equity investment.
The main reason for investors rushing to the emerging and frontier economies is that they usually get good returns on their investments while interest rates are very low or negative in the developed countries.
Bangladesh is not well-integrated with global equity funds. The country is not attractive to foreign equity investors for a variety of reasons. Some fly-by-night type foreign investors had come here on occasions for making quick bucks. Since this market has apparently more problems than prospects, foreign investors do not feel the urge to make long-term investment here. Â
Besides, why should foreign investors put in their funds in a stock market when their local counterparts are finding it unattractive? Though the Bangladesh stock market has expanded with the inclusion of more and more issues, it has still remained shallow.
The market was experiencing a steady and normal growth in the early 90s following the country's transition to democracy through the 1991 general election. But it suffered a big jolt and lost its way in the middle part of 1996. Manipulators, in the absence of regulatory oversight and intervention, had a field day and played with the fate of thousands of investors, most of whom were ignorant and, honestly speaking, greedy. Both manipulators and ignorant investors wanted to become rich overnight. The former had the last laugh and the latter went home with their fingers burnt.
The market, after the 1996 crash, went on limping for many years before showing signs of recovery in the middle part of 2000. It was on a steady recovery path until 2010 when it got yet another rude shock despite the securities' regulator claiming its better preparedness to detect manipulations. So, it is believed widely here that manipulators are more powerful than the regulatory or other oversight bodies. They have strength and scope to stage a comeback anytime. They might be considering that the current situation is not favourable for returning to business. But at an opportune moment they might come out from the shadows to give their luck yet another try. Â
Bangladesh is still less integrated with the global equity funds because of lack of transparency and wanton manipulation of the capital market. Foreign equity fund investors keep aloof from this market mainly because of these factors.
The country's impressive economic performance should have attracted foreign equity investors. But that is not happening. On the other hand, economies growing at rates lower than that of Bangladesh are luring such funds away.
Bangladesh bond market is still at a nascent stage. Lower yields and an under-developed market have been failing to draw the attention of international investors. Going by the developments, one has reasons to believe that the government is not interested to develop the bond market for its savings tools are found to be very effective means to help meet its fiscal deficit. It is not that only foreign investors are staying away from the bond market. Local investment in government bonds is still meagre.
Notwithstanding the risk involved in its excessive inflow, foreign equity funds do help nourish the equity and bond markets of a country. The bearish stock and bond markets of Bangladesh, in fact, are in need of greater inflow of equity funds for their rejuvenation. Such funds would flow in only if the objective conditions remain favourable. But that would not happen automatically.
It is essentials to make conscious as well as serious efforts to create conducive conditions in both stock and bond markets for attracting a healthy flow of both local and foreign investments. The stock market saw unusual rush of investors in 1996 and 2010. Such a surge is abnormal and it causes more harm than good. The local investors and also the market got hard lessons on both the occasions. The market had plunged into deep uncertainty as millions of investors lost most part of their investments.
The securities' regulator is now trying to revive the capital market. It has formulated a few rules to plug loopholes that were exploited by manipulators in the past to achieve their evil designs. But it does have a few weaknesses. Besides, all stakeholders would have to go a few miles more to help restore confidence of general investors in the market. Are they ready to do that? That is a million-dollar question.
zahidmar10@gmail.com
An unattractive destination for equity funds
Shamsul Huq Zahid | Published: August 30, 2016 00:00:00 | Updated: February 01, 2018 00:00:00
Share if you like