Stock exchanges and real sectors of the economy
Wednesday, 3 October 2007
THE upbeat mood of the country's stock market does otherwise provide a positive indicator about its economy, notwithstanding the sluggish investment scenario and other disconcerting signals about production-oriented and employment-generating activities amid the persistent unease over the price situation. The overall economy has suffered considerable dislocations because of the recent successive floods and is not in a good shape. This is evidenced by the large amount of excess liquidity in the banking sector -- a situation that reflects depressed demand conditions for bank credits. For whatever reasons, the businesses are not expanding their operations. But the stock market has nonetheless been showing a robust performance, indicating that investors, both institutional and retail, are not much concerned over the situation in the real sectors of the economy.
The total market-capitalisation of the Dhaka Stock Exchange (DSE), the country's premier bourse, reached last Monday its highest-ever record -- Taka 626.353 billion. On that day, the DSE General Index stood at 2627.024 points. The securities market of the country has, on the whole, been on a high gear, in the first quarter of the current fiscal, 2007-08. Earlier, it witnessed a robust growth too, in the last fiscal -- 2006-07 -- when market capitalisation of the DSE rose 120.89 per cent, its General Index exceeded 2,000-mark and turnover and market capitalisation crossed milestones at Taka 2.0 billion-mark and Tk. 450 billion-mark respectively. And the growth and momentum of activities in the market have continued until now, showing a new vigour and dynamism. By and large, the stock market has remained unaffected by the on-going drives against tax evasion and corruption.
In this backdrop, the confidence of investors in the securities market does serve as an indicator of buoyant demand conditions in the market. Funds have moved in substantial amounts to the stock market during the recent months largely because of relatively hassle-free type, as of now, of business operations there. Investors have, therefore, reasons to feel themselves quite comfortable with the current developments in the securities market. In this situation, the capital market regulator -- the Securities and Exchange Commission (SEC) and the self-regulatory bodies like the DSE and the Chittagong Stock Exchange (CSE) -- have now a great deal of responsibility to ensure that this confidence of the investors is sustained. Certainly, the market has now greater institutional strength than before and this has enhanced its capacity to forestall the possibility of any replay of the market crash in late 1996. Both the regulator and the self-regulatory bodies will need to take actions and moves in tandem and in a continual process to provide the right signals to the investors about transparency being maintained in the market.
Now that the demand-side situation is strong in the securities market, the concerned authorities should take appropriate supportive steps to help augment the supply of good stocks. For this purpose, the government should act upon its earlier announced policy decision to facilitate the entry of more companies under power, telecommunication and energy sector to the stock market. This entry will give a new boost to the market, creating the scope for its much-needed depth and sustainable expansion. However, it must be pointed out here that the current developments in the stock market will not be sustainable in the long run unless the real sectors of the economy that have relevance to the fundamentals of the listed companies do also show improvements in their performance. Hence, the importance of broader policy measures for encouraging positive trends of all the economic indicators -- gross domestic product, export, import, remittance, investment flow, foreign exchange reserve etc. -- should under no circumstances be relegated to the background.
The total market-capitalisation of the Dhaka Stock Exchange (DSE), the country's premier bourse, reached last Monday its highest-ever record -- Taka 626.353 billion. On that day, the DSE General Index stood at 2627.024 points. The securities market of the country has, on the whole, been on a high gear, in the first quarter of the current fiscal, 2007-08. Earlier, it witnessed a robust growth too, in the last fiscal -- 2006-07 -- when market capitalisation of the DSE rose 120.89 per cent, its General Index exceeded 2,000-mark and turnover and market capitalisation crossed milestones at Taka 2.0 billion-mark and Tk. 450 billion-mark respectively. And the growth and momentum of activities in the market have continued until now, showing a new vigour and dynamism. By and large, the stock market has remained unaffected by the on-going drives against tax evasion and corruption.
In this backdrop, the confidence of investors in the securities market does serve as an indicator of buoyant demand conditions in the market. Funds have moved in substantial amounts to the stock market during the recent months largely because of relatively hassle-free type, as of now, of business operations there. Investors have, therefore, reasons to feel themselves quite comfortable with the current developments in the securities market. In this situation, the capital market regulator -- the Securities and Exchange Commission (SEC) and the self-regulatory bodies like the DSE and the Chittagong Stock Exchange (CSE) -- have now a great deal of responsibility to ensure that this confidence of the investors is sustained. Certainly, the market has now greater institutional strength than before and this has enhanced its capacity to forestall the possibility of any replay of the market crash in late 1996. Both the regulator and the self-regulatory bodies will need to take actions and moves in tandem and in a continual process to provide the right signals to the investors about transparency being maintained in the market.
Now that the demand-side situation is strong in the securities market, the concerned authorities should take appropriate supportive steps to help augment the supply of good stocks. For this purpose, the government should act upon its earlier announced policy decision to facilitate the entry of more companies under power, telecommunication and energy sector to the stock market. This entry will give a new boost to the market, creating the scope for its much-needed depth and sustainable expansion. However, it must be pointed out here that the current developments in the stock market will not be sustainable in the long run unless the real sectors of the economy that have relevance to the fundamentals of the listed companies do also show improvements in their performance. Hence, the importance of broader policy measures for encouraging positive trends of all the economic indicators -- gross domestic product, export, import, remittance, investment flow, foreign exchange reserve etc. -- should under no circumstances be relegated to the background.