Stock market sees steepest single-day fall in 14 years

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GERMANY: German Chancellor Angela Merkel and the new French president Francois Hollande gesture after addressing a press conference at the German Chancellery Tuesday in Berlin. Francois Hollande meets Angela Merkel for their first talks on the debt crisis

FE Report
Dhaka stocks suffered Sunday the highest single-day fall since the 1996 crash.
The unusual fall began as banks and brokerage houses started trimming their respective portfolios in line with the directives issued separately by the central bank and the securities regulator limiting their exposure to stock market.
The benchmark DSE General Index (DGEN) shed 204.75 points --- its highest single-day drop since November 6, 1996, when the index had lost 233 points --- to close at 6200, which is 3.19 per cent down from the previous day.
The bloodbath started from the morning and continued until close of the trading session as heavy selling pressure was witnessed in the banking, leasing, fuel and power, and engineering stocks.
Bangladesh Bank (BB) has sent show-cause notices to the seven banks for not to complying with its directive to bring their overexposure to the market within the permissible limit.
Early this month the BB asked banks not to have more than 10 per cent of their liabilities in the stock market and adjust overexposure by next month.
Last week, the Securities and Exchange Commission put cap on the single-borrower exposure of the merchant banks and the brokerage houses to bring about discipline in the stock market.
The exposure limit has been set at Tk 100 million in the case of merchant banks and Tk 50 million for brokerage houses. The decision on exposure limit came into effect from yesterday (Sunday).
The broader DSE All Shares Price Index (DSI) plummeted 173.55 points or 3.25 per cent to close at 5158.39, while DSE 20 comprising blue chips ended at 3630.37 with a steep fall of 133.18 points or 3.53 per cent.
"Central bank's and securities regulator's directives have pulled the market down," said Shakil Rizvi, president of the Dhaka Stock Exchange.
"There is no reason for panic", he added.
Share prices of more than 80 per cent securities declined but the volume was relatively impressive. Out of 244 issues traded, 51 gained, 191 declined and two remained unchanged.
All the sectors, except mutual funds that rose 2.26 per cent, closed in negative terrain as the selling across the board was seen.
"In my opinion, selling pressure came from forced liquidation of positions at the level of financial institutions, which were the subject of show cause notices by authorities for market over-exposure," said Hasan Imam, managing director of the RACE Asset Management Company.
"Generally, forced liquidation of significant size destabilizes the financial markets, orderly selling over an extended periods is preferred," he said.
"As fund manger, we are not taking any drastic sell action in our funds. Mutual fund managers have the responsibility to act as a stabilizing force during market downtrends. We will step in and support the market if needed and at the appropriate time," Imam said.
Even after tightening exposure limit, the daily turnover was relatively good as it stood at Tk 14.97 billion, down 14 per cent over the previous session.
The banking sector --the market's bell weather-- went into a steep dive with the banks trading in the red. The sector lost 5.0 per cent with the IFIC Bank falling the highest 8.69 per cent, followed by the Pubali Bank 6.95 per cent, the AB Bank 6.55 per cent and the Islami Bank 5.42 per cent.
The non-banking financial institution sector dropped 3.0 per cent, energy 2.82 per cent, cement 5.39 per cent and engineering 4.11 per cent.
The top turnover leaders were Titas Gas, AB Bank, LankBangla Finance, BSRM Steel, Beximco, RAK Ceramics, DESCO, United Airways and Summit Power.
The prominent gainers included Prime First ICB AMCL Mutual Fund, United Airways, Dacca Dyeing, Atlas Bangladesh, ICB AMCL Second NRB, Gemini Sea Food, ICB Employee First and ICB Third NRB.