Share market : Risky developments
Sunday, 25 November 2007
I read with interest the article by Enayet Rasul on the above subject last month. It described the upsurge in the share market as unsustainable and called for caution and appropriate policies on the part of the regulators. There were demonstrations in front of the DSE on Thursday proving some of the fears expressed in that article.
The share market of a country is a barometer of its economic health. A share market is usually seen developing robustly on proper lines if the other economic indicators such as the higher rate of new investment operations, the stronger functioning of existing companies listed in the stock markets, etc., are noted by the investors which persuade them to invest in the market out of a sense of the market gaining in strength from the better functioning of the economy as a whole. But when these conditions are not present but the buying and selling in the markets rise spectacularly alongwith the value of shares listed at the low end of preferences, then such an apparent invigoration of the market cannot be considered as a healthy one.
But that is what that has been happening in the country's two stock markets at Dhaka and Chittagong recently. If the surge in the market was driven by new companies with truly convincing credentials of their health and floatation of their initial public offering (IPO) in the market or the expanded functioning or higher profits of the existing companies pushing up their share values as well as their buying, then that would make sense. But neither is happening. New companies are not seeking to mobilise share capital from the markets and many listed companies are in a depressed situation but their share values have gone up from the frenzied trading. Therefore, a rectification in the market is only a question of time and a crash could bring down to their knees thousands and thousands of people who scrambled to the market recently with their very hard earned capital in most cases from an expectation of making a big kill. But great frustration may be in store for them.
The Securities and Exchange Commission (SEC) is the regulator of the Stock Market. It should act more vigorously to control such an outcome. But share buying and selling, after all, is mainly the decision of the investors and SEC's regulations may not have so much cooling or benign effects on the market.
To postpone a crash like in 1996, the government should promptly release its shares in profitable public enterprises in the stock markets. It can also consider releasing of bonds in the market for its various developmental projects. The large scale supply of worthwhile shares in the market can be the only way of hedging the investors from malinvestment in existing number of limited shares and suffering the ill consequences thereof. Government's such actions, now, will yield for it resources while also guarding against the risky developments noted in the market.
Mahmud Rashid
Motijheel, Dhaka
The share market of a country is a barometer of its economic health. A share market is usually seen developing robustly on proper lines if the other economic indicators such as the higher rate of new investment operations, the stronger functioning of existing companies listed in the stock markets, etc., are noted by the investors which persuade them to invest in the market out of a sense of the market gaining in strength from the better functioning of the economy as a whole. But when these conditions are not present but the buying and selling in the markets rise spectacularly alongwith the value of shares listed at the low end of preferences, then such an apparent invigoration of the market cannot be considered as a healthy one.
But that is what that has been happening in the country's two stock markets at Dhaka and Chittagong recently. If the surge in the market was driven by new companies with truly convincing credentials of their health and floatation of their initial public offering (IPO) in the market or the expanded functioning or higher profits of the existing companies pushing up their share values as well as their buying, then that would make sense. But neither is happening. New companies are not seeking to mobilise share capital from the markets and many listed companies are in a depressed situation but their share values have gone up from the frenzied trading. Therefore, a rectification in the market is only a question of time and a crash could bring down to their knees thousands and thousands of people who scrambled to the market recently with their very hard earned capital in most cases from an expectation of making a big kill. But great frustration may be in store for them.
The Securities and Exchange Commission (SEC) is the regulator of the Stock Market. It should act more vigorously to control such an outcome. But share buying and selling, after all, is mainly the decision of the investors and SEC's regulations may not have so much cooling or benign effects on the market.
To postpone a crash like in 1996, the government should promptly release its shares in profitable public enterprises in the stock markets. It can also consider releasing of bonds in the market for its various developmental projects. The large scale supply of worthwhile shares in the market can be the only way of hedging the investors from malinvestment in existing number of limited shares and suffering the ill consequences thereof. Government's such actions, now, will yield for it resources while also guarding against the risky developments noted in the market.
Mahmud Rashid
Motijheel, Dhaka