When the government and the multilateral donors are contradicting each other's projection over the possible growth rate of the economy during the current financial year, the stock market, one of the key indicators of the economic health of a country, continues to be in a miserable state.
Barring occasional unexplained brief bouts of uptrend, the prices of most stocks have been on a sliding path for the past few weeks and the main index of the country's premier bourse, the Dhaka Stock Exchange (DSE), last Thursday reached its lowest level in the past 17 months.
Even nearly four and a half years after the infamous collapse, the market is not showing the slightest sign of recovery. Rather, the market mood has become gloomier and more depressed than before in recent days.
Except for the stocks belonging to the multinational companies (MNCs), the prices of most listed issues have either gone down or remained static, more or less. A report published in this paper late last week showed the poor state of stock prices in bourses.
The mutual funds are having their worst time in history. The same is true in the case of stocks of banks and financial institutions that have a fair share in the market capitalisation of all listed issues.
Most funds are being traded below their face value. Out of the 41 closed end mutual funds, only 11 including 8 managed by the state-owned Investment Corporation of Bangladesh (ICB) have their price level above the face value. The prices of the remaining funds have steadily gone down in between 50 and 70 per cent of their respective net asset value (NAV). The declining trend got pace as most funds either failed to declare any dividends or did declare the same at poor rates.
In the world of capital market, investment in mutual funds is considered safe because the funds, in addition to their investment in money market instruments that offer an ensured return at the end of maturity periods, have diversified investment in different types of stocks. Since the funds do not put all their eggs in one basket they are considered relatively risk-free and safe. In their case, if some of the stocks in which they have invested their money perform poorly there is every chance that some others would give them fair returns.
Unfortunately, the prevailing market environment in Bangladesh is not at all favourable for the mutual funds. The return from the money market instruments has gone down following the recent cut in interest or yield rates by the banks and non-banking financial institutions.
Usually, the mutual funds make their major part of the income from the transactions of stocks. They do make dividend income from some issues, particularly those received against the 10 per cent kept reserved in all initial primary offerings (IPOs) for the mutual funds.
But reshuffling of investment in secondary stocks by the asset management companies (AMCs) is one of the recognised means of earning revenue by the mutual funds. But in a very dull and drab market it is hard to do that. The daily turnover, the most important indicator of investors' confidence in market, is now less than Tk 4.0 billion. The turnover does tell the state of affairs with the stock market.
The falling prices of their stocks do also highlight the situation with the banks and other financial institutions. The stocks of at least seven out of 30 listed banks are being traded below their respective face value.
The ICB Islamic Bank had been the lone bank to see its shares being traded below the face value for many years. But six other banks are now having the identical experience. The decline in profitability coupled with large-scale scams involving bank loans is blamed for erosion in the value in banks' stocks.
The situation prevailing in the stock market is very much in line with the investors' mood in other areas of the economy. And that is very natural and there should be no reason to be worried about it.
One good thing about the market is that there have been no artificial efforts to buoy up the market, at least, temporarily in recent days. The true mood of the investors is being reflected in the daily transactions of the market.
Most probably, the market would have behaved differently had there been no demutualisation of the bourses. Investors could see sudden and occasional upsurge in stock prices for no plausible reasons. In fact those used to be stage-managed developments. That was why the uptrend did not last for long periods.
The present DSE management deserves appreciation, at least, for not trying to boost the market mood artificially. It is better to let the market play by its own rules without any outside interference.
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