Rejuvenating the bourse is top priority

FE Team | Published: January 20, 2024 19:41:02

Authorities had introduced floor pricing more than a year ago to prevent a possible crash in the country's main bourse. What had originally been envisaged as a short-term measure had become a long-term one and with unintended, but not entirely unpredictable, consequences. In its latest move, the Dhaka Stock Exchange (DSEX) index is to move out of this forced system of price control in an effort to bring vibrancy. What is amply clear of course is that some of the biggest companies with the highest market capitalisation have not come under the purview of this said "rebalancing". These include companies like ACI Limited, United Power, Bank Asia, Dutch Bangla Bank, Summit Power, etc. So, what has happened is that most of the good companies are out but bad ones are in due to this floor price mechanism.
Any trader worth his or her salt will agree that these machinations have actually damaged confidence in the DSEX. Over time, billions of Taka worth of investments - both by institutions and retail players- have been stuck in the market because trading of major shares was put on the freezer, i.e. the most sought-after shares could not be bought and sold. It had created an unnatural situation which undermined confidence in the market. There was a time when DSEX had garnered serious international interest and major foreign investment had come in to it.
The fear of authorities was that had DSEX been left to market forces, the bourse would crash. But then, the very nature of bourses (around the world) is to have ups-and-downs. Trying to control is completely against the nature of the stock market but that is precisely what had happened. Even today, we see attempts to include poor performers that garner no interest amongst market players - companies like Imam Button, Zeal Bangla Sugar Mills, to name but a few. One can drag a horse to water but can't make it drink. If authorities believe that by opening the market partially it will be bringing vibrancy back to DSEX, it will not work.
It is easy to understand the worry of policymakers, given the fact that the bourse isn't a normally functioning market. Major manipulators have always been active in this bourse and the country has witnessed several stock market scams in the past. Having said that, instead of taking corrective measures on that front, these partial, half-hearted measures to continue to try and control the market is not going to have the desired effect.
Floor price needs to go. People / institutions need to be able to offload their shares. Yes, there could be losses since there will be overwhelming selling pressure. But then, the market will stabilise. Regardless of what policymakers believe, investors may be in need of getting back their investments in part or full - even if it means selling their stock at a loss. This will bring back vibrancy to a currently "illiquid" market. In fact, floor price should have been removed some months back but wasn't. It is good to see that some semblance of normalcy may be returning to the market.