Gambling with stocks

Now-a-days gambling in the Dhaka Stock Exchange is not visible because its extent is not huge, and does not happen in case of many stocks. But it is there under the surface in a miniature form. Gamblers pick up one or two stocks and continuously push up prices of the chosen stocks till they think enough ordinary investors now have joined the foray and then they can pull out the rugs.

When the DSE stock index came down below 4,000 points in late April, a sort of concern was felt all around including among policymakers. The Bangladesh Securities Exchange Commission (BSEC), the regulator concerned, hurriedly called a meeting of big investors who included merchant bankers and mutual fund managers.

The meeting deliberated on one issue: how to prevent a further slide in stock prices. That meeting as reported in the media produced results.

It succeeded in stopping the slide in stocks prices and the index increased by more than 500 points in two weeks.

Was the meeting held at the BSEC the only determining factor behind stopping the slide? No, that was at best a complementary cause.

The other causes which pushed the stock prices up in the weeks that followed were the government's decision to slash interest rates of savings certificates and also the expectation that with that cut, the market rates of interest, specially deposits rates in the banks will also come down. Naturally when interest rates come down, the stock prices go up with other things remaining the same.

Also a sort of expectation grew among a class of investors that some kind of incentives benefiting the share market would be given in the upcoming national budget to be placed on the 4th of June 2015.

This time investors believe that the stock market issue, or so to say the interest of investors, will not be forgotten by the policymakers at the National Board of Revenue and the Ministry of Finance.

The Bangladesh economy is passing through a seemingly calm situation. This is helping one kind of investors to expect better times in the market. Investors have brought in more money in the market and created an increased demand. But all investors do not find it good in the recent price rise of stocks.

The investors who look for fundamentals in stock pricing are not happy with the recent price increase of fundamentally poor stocks. Rather, they apprehend the market will come back to its previous low once the present fanfare will be over.

Bangladesh's stock market by all symptoms and manifestation is a fragile one and will remain so in the foreseeable future when the market is supplied with more quality stocks. What is now available in the name of stocks are all but few just like gambling instruments.

The oft-played gambling instruments are those that are at the lowest prices remaining for months or years after losing prices because of investors' no-confidence in them. Suddenly one or two stocks from the non-performing stocks start moving upward and the movement does not stop till prices of those stocks go up to an unbelievably high level in a very short period.

In recent weeks, the prices of some steel companies' stocks moved up more than 60 per cent though investors' eye-brows were raised at the rise. The same happened with the stock of a private airline company which investors say is sunk in indebtedness. The examples are many.

Gamblers pick up one or two stocks at a time, start pushing up the prices and continue with it till the ordinary investors are intoxicated with an instinct of greed and make them flock around these stocks. The gambling stocks, to the dismay of the fundamentalists, become turnover leaders and also price leaders.

How do the gamblers become successful in playing around with the psyche of the ordinary investors? It is heard that they use the rumours, cell phone calls, SMS and also social media like Facebook and twitters. They need some ready-to-listen investors. The gamblers know how to make them crazy by infusing in them an instinct of greed for becoming rich quickly.

These gamblers can easily escape the net of the security laws that prohibit gambling. By the time the regulator starts feeling something unusual, the gamblers start dismantling the network. The gambled-stock prices start going back to the positions wherefrom they rose. The going-back process of the prices happens slowly so that nobody feels hurt in a big way.

In the DSE, the fundamentalists among investors are sometimes laughed at by calling them even fools. Though gambling does not bring any benefit to the ordinary late entrants, the reality is that there is no dearth of such investors in the DSE who want to be gamblers' partners. Every time they join the gambling network every time they lose -- maybe different investors in different times only.

Gambling and excessive speculation also take place in other stock markets around the world and at some points they reinforce each other. But in Bangladesh's stock market gambling and excessive speculation are two separate things, because here gamblers do not bother about whether a company whose stock is being gambled is in production or not.

The only way of minimising gamblers' dictates is to supply the market with good stocks. By good stocks , those from the fundamentally good companies are meant. The main problem with Bangladesh's stock market is that it has very few good stocks which can be chosen by the investors for long-term investment.

The writer is Professor of Economics, University of Dhaka.

 abuahmedecon@yahoo.com