Informed investment decisions can prevent mkt manipulation

Investors' prudent investment decision guided by reasonable expectations is seen as an important factor in stabilising the stock market.
Capital market experts and portfolio managers laid emphasis on the level of financial literacy on the part of general investors. They felt that involvement of financially literate investors is a sine qua non for the stock market behaving rationally.
A committee of the Bangladesh Securities and Exchange Commission (BSEC) recently submitted a report on Nationwide Financial Literacy Programme.
In the report, the committee said most of the investors are marginal and financially illiterate, underlining the fact that they are unable to make right investment decisions.
"They make investment decisions based on rumours, intuitions and emotions as they are unable to interpret the information disclosed in the financial statements and in other sources," the report says.
According to the report, investors' dependence on rumour and emotion gives rise to information asymmetry on the market that leads them up the garden path.
"Besides, investors rely on other large investors to make investment decision. It gives manipulators an opportunity to exploit financially illiterate investors."
The committee cautions that getting carried away by rumours, emotions and intuitions in making investment decisions would not only jeopardise the illiterate investors' own future but also the stability of the capital market.
The BSEC panel said it's high time the authorities paid a close attention to raise the level of financial literacy among the investors, many of whom had burnt their fingers during the two past market scams.
Against such background, the securities regulator has formed two committees for launching nationwide financial literacy campaign.
Some institutional investors said investors' perception regarding 'confidence' is yet to be assessed, although there has been a flurry of talk that there is lack of investors' confidence.
Mohammad Ali, managing director of Dhaka Bank Securities, said he was yet to be sure about the definition of 'confidence' in absence of investors' rational behaviour and expectation for returns from the capital market.
He said confidence is a 'vague' term unless someone is not able to assess his rational expectation based on companies' fundamentals.
"It cannot be termed confidence if a company's market price rises above 780 per cent within seven days," Mr Ali said and emphasised rational behaviour of investors to set the bourses on normal track.
He said before making investment in any company, investors would have to know its market capitalisation and the amount of shares held by the public, sponsor-directors.
"Investors' proper idea regarding investments is a must," Ali added.
While talking to the FE, some general investors refused to make comment regarding 'confidence' and level of expectation.
ABM Shahidul Islam Titu, a general investor, said crisis of confidence is created following any kind of rumour on a market marked by speculation.
"The regulator looks into the abnormal price hike in the shares of the listed companies. But the BSEC never wants to know the reasons when the price of a company, which went public with premium, declines significantly without justification," Mr Shahidul said.
He said in many cases the companies' prices fall when any unscrupulous group comes out by selling out their shares.
"The irrational premiums also create crisis when the companies' market prices go down below offer prices," he added.
An investor having a BO account with the Shakil Rizvi Stock Limited said to him confidence means an increase in share prices.
Another investor, Nurul Islam, who conducts share trade at Sterling Securities, said investors' confidence is largely dependent on decisions of the central bank and the securities regulator.
He said the securities regulator approves IPO (initial public offering) proposals justifying the companies' financials.
"So, the regulatory approval for any IPO proposal gives us a guarantee to purchase shares. But, after listing, it's observed that the company which showed positive earnings in previous years showed negative earning soon after listing," Mr Islam said.
Md. Sayadur Rahman, president of Bangladesh Merchant Bankers Association (BMBA), also echoed Mr Ali's views about the term confidence.
"It's difficult to define confidence if there is no specific level of expectation," said Mr Rahman, also a director of EBL Investments.
He said it is not possible to assess the fundamental strength of a company just looking at the website of the stock exchanges.
"Investors must have a rational level of expectation. Otherwise, the matter of confidence will not bear any meaning," Mr Rahman said.    
In his view the capital market is presently more stable and going well.
On November 22, 2015, chairman of the Securities and Exchange Board of India (SEBI) Upendra Kumar Sinha made a presentation on the market regulations, enforcement actions and investors' rights to information regarding the companies' financial disclosures, future projections and even internal transactions.
In his presentation, Mr Sinha described how Indian households' savings were brought into their capital market.
"Strong enforcement, market mechanisms and communication helped us to restore investors' confidence."
Citing the example of SEBI's monitoring activities over the companies' financials, the stock-market expert said investors have the right to know financial disclosures, litigation and even the company's internal transactions.
Asked about regulatory enforcement, Prof. Helal Uddin Nizami, a BSEC commissioner, said the securities regulator cancelled the licence of a merchant bank alongside barring a chief executive officer for their fraudulent activities.
"The securities regulator's job is to create proper environment through reforms and enforcement actions. We have also removed the loopholes in book-building systems," Nizami said.
He said investors will have to come out of expectations for making profit within three trading days.
"Investors will have to set strategies to secure their own investments and profits. We can only assure that their money will not be siphoned off," Nizami said.
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