Stock downturn and fly-by-night investors
Wednesday, 3 December 2008
Shamsul Huq Zahid
The general index (DGEN) of the Dhaka Stock Exchange (DSE) shed nearly 500 points for about a couple of months with investors losing investments worth billions of taka.
The investors are, apparently, failing to pinpoint factors that are pulling the market down. For the market was a bit heated, no doubt, but not over-heated to the extent that it would go down continuously.
The market has come down to the level that most investors would find it very attractive. Yet investors are not coming to the market. Even steps such as relaxation of margin rule for the merchant bankers and cessation of forced-sale of stocks by them to recover loans have failed to create investors' interest. If the market rises marginally today, it goes down for several days in a row.
Is the global financial meltdown influencing the behaviour of the Bangladesh stock market? If one goes by the past track record of the market, here one would feel tempted to reply in the negative.
The Bangladesh stock market has always behaved in a way that is different from that of other markets, big or small. Its reaction to important national and international events was found to be very unnatural and, in most cases, different from the markets in other countries.
So, going by that behavioural pattern, the international financial crisis should not have abruptly dampened the spirit of the high flying investors in Bangladesh market. Besides, the investors have been encouraged to ignore the possibility of any impact of the global crisis on the Bangladesh economy by the government leaders, the central bank governor and some business leaders. The latter have been consistently ruling out the possibility of any major impact. The WB officials, who have come under verbal attack for making lower growth projection for the Bangladesh economy, must now be cursing themselves for making the projection in public.
What has actually gone wrong in the stock market?
It is very natural for the stock market to go up and down. But it cannot go up and down unendingly. At one stage, there has to be a pause, followed by a reverse trend.
For the last one and a half years, on a number of occasions, the DGEN went up to nearly 3200 points and, at one stage, it started climbing down. But the fall did not last too long and the index started rising again.
The most striking feature of the current decline is that, barring occasional and marginal rise, the index has been falling continuously for nearly last two months, despite the fact stock prices have reached the most rewarding stage, in terms of investment.
It appears from the current daily turnover that a group of investors who entered the market after the 1/11 have withdrawn after making windfall profits. These investors, many tend to believe, are very influential and invested sizeable amount in stocks. Hiking stock prices through the spread of rumours was one of the tactics employed by them. As the day for a democratically elected government to take over the rein of the country's administration is drawing nearer, these investors have though it safe to leave the market.
This particular group of fly-by-night investors, actually, has done more damage than good to the market. The market, which has greater depth and strength than any time in the past, would have been in a better position now without those investors. Many genuine investors looking at the brighter market prospects would have come to the market. The market behaviour in the months preceding the current decline, on the one hand, kept these investors away from the market and, on the other, a large number of investors, guided more by greed than real knowledge about the basics of stock trading, entered the market and were instantly attracted by rumours. The latter, in most cases, have burnt their fingers.
There would soon be a turnaround, hopefully, without the investors who can dictate the market because of their connections with the powerful quarters and the capacity to employ very large funds in the market.
A good number of quality stocks have already hit the market in recent months and some more, including those belonging to the telecom sector, would be coming soon.
The Securities and Exchange Commission (SEC) is now in the midst of drafting comprehensive rules for book-building method which is expected to encourage more and more companies with strong fundamentals to go public.
However, the performance of the listed issues, old and new, will be the most important factor. The investors would, surely, pin hope on all the assurances coming from the finance adviser, central bank governor and business leaders, particularly the heads of the two associations of the apparel sector, about the country's economic performance in the current fiscal year (2008-09). The finance adviser, if the elections are held on schedule and an elected government takes over the rein of the country's administration, would have the opportunity to point fingers to someone else if the current projection about economy goes wrong. But for others it might not be that easy to find scapegoats.
The general index (DGEN) of the Dhaka Stock Exchange (DSE) shed nearly 500 points for about a couple of months with investors losing investments worth billions of taka.
The investors are, apparently, failing to pinpoint factors that are pulling the market down. For the market was a bit heated, no doubt, but not over-heated to the extent that it would go down continuously.
The market has come down to the level that most investors would find it very attractive. Yet investors are not coming to the market. Even steps such as relaxation of margin rule for the merchant bankers and cessation of forced-sale of stocks by them to recover loans have failed to create investors' interest. If the market rises marginally today, it goes down for several days in a row.
Is the global financial meltdown influencing the behaviour of the Bangladesh stock market? If one goes by the past track record of the market, here one would feel tempted to reply in the negative.
The Bangladesh stock market has always behaved in a way that is different from that of other markets, big or small. Its reaction to important national and international events was found to be very unnatural and, in most cases, different from the markets in other countries.
So, going by that behavioural pattern, the international financial crisis should not have abruptly dampened the spirit of the high flying investors in Bangladesh market. Besides, the investors have been encouraged to ignore the possibility of any impact of the global crisis on the Bangladesh economy by the government leaders, the central bank governor and some business leaders. The latter have been consistently ruling out the possibility of any major impact. The WB officials, who have come under verbal attack for making lower growth projection for the Bangladesh economy, must now be cursing themselves for making the projection in public.
What has actually gone wrong in the stock market?
It is very natural for the stock market to go up and down. But it cannot go up and down unendingly. At one stage, there has to be a pause, followed by a reverse trend.
For the last one and a half years, on a number of occasions, the DGEN went up to nearly 3200 points and, at one stage, it started climbing down. But the fall did not last too long and the index started rising again.
The most striking feature of the current decline is that, barring occasional and marginal rise, the index has been falling continuously for nearly last two months, despite the fact stock prices have reached the most rewarding stage, in terms of investment.
It appears from the current daily turnover that a group of investors who entered the market after the 1/11 have withdrawn after making windfall profits. These investors, many tend to believe, are very influential and invested sizeable amount in stocks. Hiking stock prices through the spread of rumours was one of the tactics employed by them. As the day for a democratically elected government to take over the rein of the country's administration is drawing nearer, these investors have though it safe to leave the market.
This particular group of fly-by-night investors, actually, has done more damage than good to the market. The market, which has greater depth and strength than any time in the past, would have been in a better position now without those investors. Many genuine investors looking at the brighter market prospects would have come to the market. The market behaviour in the months preceding the current decline, on the one hand, kept these investors away from the market and, on the other, a large number of investors, guided more by greed than real knowledge about the basics of stock trading, entered the market and were instantly attracted by rumours. The latter, in most cases, have burnt their fingers.
There would soon be a turnaround, hopefully, without the investors who can dictate the market because of their connections with the powerful quarters and the capacity to employ very large funds in the market.
A good number of quality stocks have already hit the market in recent months and some more, including those belonging to the telecom sector, would be coming soon.
The Securities and Exchange Commission (SEC) is now in the midst of drafting comprehensive rules for book-building method which is expected to encourage more and more companies with strong fundamentals to go public.
However, the performance of the listed issues, old and new, will be the most important factor. The investors would, surely, pin hope on all the assurances coming from the finance adviser, central bank governor and business leaders, particularly the heads of the two associations of the apparel sector, about the country's economic performance in the current fiscal year (2008-09). The finance adviser, if the elections are held on schedule and an elected government takes over the rein of the country's administration, would have the opportunity to point fingers to someone else if the current projection about economy goes wrong. But for others it might not be that easy to find scapegoats.