Bangladesh at the bottom of global markets in May

The Bangladesh stock market was the worst performer globally in May this year, as the prime index plunged 333 points or 6 per cent owing to a severe confidence crisis among local and foreign investors.
On the other hand, Taiwan was the best performer with a more than 7 per cent return in May, followed by Pakistan witnessing a return of 5.5 per cent and Vietnam 3 per cent, according to EBL Securities.
The scenario is as gloomy when the Bangladesh market is compared with global markets for the period between May 1, 2023 and May 30 this year. During the time, the Dhaka Stock Exchange experienced an erosion of more than 17 per cent, while India gained around 18 per cent and Pakistan 81 per cent.
Market experts attribute Bangladeshi stocks' poor performance to regulatory interventions not letting the market take its own course.
"Frequent changes in regulations impact the market badly," said Mohammad A Hafiz, former president of the Bangladesh Merchant Bankers Association (BMBA).
The nearly 18-month-long price restriction on stocks was lifted in January at a time when economic stress intensified for rising interest rates and a further devaluation of the local currency against the dollar.
Soon after the removal of floor prices, foreign investors started selling off their holdings to leave the market.
Consequently, overall foreign transactions slumped 48 per cent year-on-year to Tk 21.67 billion in 2023. The trend has continued this year causing the market to plunge.
"Now, nothing is in favour of the capital market," Saiful Islam, president of the DSE Brokers Association of Bangladesh, recently told the FE.
Apart from concerns over higher interest rates and cheaper local currency, profitability of listed companies has shrunk for higher import costs.
Lingering macroeconomic instability has been discouraging fresh investments in stocks, said Mr Hafiz.
The interest rate of Treasury bonds recently jumped to a 15-year high of 12.75 per cent while bank deposit and lending rates also started climbing after the Bangladesh Bank scrapped the SMART (six month moving average rate of Treasury bills) formula to make interest rates fully market-based.
Owing to external and internal factors, inflation has stayed above 9 per cent for the past 20 months, one of the longest spells of cost-of-living crisis in recent memories.
High inflation squeezed people's disposable income.
Meanwhile, the foreign currency reserves, which had shot to an all-time high to over $48 billion in August 2021, dropped below $19 billion in May.
Against this backdrop, investors have continued to exit the market as a majority of the stocks extended their losing streak. The market has already gone below the level seen in July 2022 when the Bangladesh Securities and Exchange Commission (BSEC) reintroduced the floor price.
The market index hovered around 6,200 points for 18 months until the securities regulator started withdrawing the floor price in January this year.
Since then, the index lost more than 17 per cent or 1,084 points and struck a 38-month low of 5,252 on Thursday. The market value shed Tk 1.39 trillion during the time.
"The relentless bearish spell continues, resulting from the enduring pessimism pervading the trading floor due to the dampened confidence among investors amidst an uncertain market outlook," said EBL Securities.
Local and foreign investors wanted to get rid of their holdings as a large number of stocks had failed to see price discovery for long.
Md. Ashequr Rahman, managing director of Midway Securities, said "artificial price mechanism" had turned the whole market illiquid, hurting investor sentiment.
The equity market has suffered a severe damage to its reputation due to frequent regulatory interferences.
Morgan Stanley Capital International (MSCI), a global investment research firm, last year decided to bring no change in measuring Bangladeshi stocks' performance in its frontier markets index due to "the deterioration of liquidity" in the equity market.
MSCI created a special circumstance as the price discovery was not happening correctly because of the imposition of floor price.
Most of the global stock indices bounced back within six months after the war between Russia and Ukraine began in March 2022.
Compared to global counterparts and regional peers, Bangladesh joined late in the game of rising interest rates and aligning core macro variables (i.e. exchange rate, interest rate) with the market, Salim Afzal Shawon, head of research at BRAC EPL Stock Brokerage, told the FE earlier.

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