Stock market scenario
Saturday, 8 December 2007
Golam Morshed raises the questions
THE 'ups' and 'downs' of share prices in the stock exchange are no unusual phenomena. As such, there should be no extra-ordinary reason for becoming worried over the course of price movements of the listed issues. Investors should be prepared to accept the risks and hazards of investments in the market. While some of them can make fortunes, some others can also incur heavy losses.
But that does not mean that the capital market regulatory authority like the Securities and Exchange Commission (SEC) or the self-regulatory 'bodies' like the stock exchanges should sit idle to let the market function without any rules of the game. Both the SEC and the stock exchanges have a great role to play in setting such rules of the game and enforcing them effectively. No investor should be allowed to suffer for reasons of lax regulatory regime in the country's capital market. Regulatory overkill can mar the prospects for proper growth of the market. Likewise, free-for-all approach can cause irreparable damage to it.
Meanwhile, the current situation in the market calls for some sober refection on its recent trends. Of late, the market is showing some unsteady signs. It has otherwise been on a strong upbeat mood in an uninterrupted sequence in past several months, with market capitalisation, share prices, daily trade turnover and all other indicators setting new records. Some analysts have termed it a demand-driven push, causing the upsurge. However, the question -- why has the demand been so strong? -- has not been explained well by such quarters. The country's banks are having excess liquidity to the tune of over Taka 130 billion. The demand for bank credits has fallen for reasons of a depressed economic situation. The performance of the real sectors of the economy has been sluggish. New investment activities are not up to the mark. Inflationary situation has continued to aggravate. There are disconcerting signals in most sectors of the economy. The fundamentals of the listed companies have not also shown any marked improvement in most cases.
Then, why is the demand so strong in the stock market? What are the sources of funds causing a strong surge in the demand for shares? Why has so much of investible surplus funds moved to the stock market when those, having such funds are shy of making investments in real sectors, real estates, and other areas where jobs and incomes are created? What are then the privileges, attractions and concessions that have pooled so much of funds to the stock exchanges under today's changed conditions? Businesses have otherwise been complaining about too many questions being asked by different agencies of the government to find out whether the funds that are deployed in their usual course of activities are tax-evaded or corruption-ridden.
The 'flocking' of funds to the stock-market, for whatever reasons, is however, welcome. Investments in stock exchanges are considered 'safe-havens' in many countries of the world. If those having surplus funds consider it hassle-free to make investments in shares under the conditions now obtaining in the country, they are, perhaps, committing no wrong. But the question yet then arises will such investments yield any worthwhile sustainable benefit to them, in ferms of returns, if the prevailing mismatch between the situation in the stock exchanges and that of the real sectors of the economy continues and also if the market prices of shares grossly run afoul of the fundamentals of the companies, for long? The concerned authorities of the government do need to ponder over this situation very seriously if they want development of the country's capital market on a sustained basis. When the demand is so strong in the market, they should take some immediate steps to help augment supplies of stocks. Otherwise, the growing imbalance between demand and supply will sooner or later lead to market crash.
THE 'ups' and 'downs' of share prices in the stock exchange are no unusual phenomena. As such, there should be no extra-ordinary reason for becoming worried over the course of price movements of the listed issues. Investors should be prepared to accept the risks and hazards of investments in the market. While some of them can make fortunes, some others can also incur heavy losses.
But that does not mean that the capital market regulatory authority like the Securities and Exchange Commission (SEC) or the self-regulatory 'bodies' like the stock exchanges should sit idle to let the market function without any rules of the game. Both the SEC and the stock exchanges have a great role to play in setting such rules of the game and enforcing them effectively. No investor should be allowed to suffer for reasons of lax regulatory regime in the country's capital market. Regulatory overkill can mar the prospects for proper growth of the market. Likewise, free-for-all approach can cause irreparable damage to it.
Meanwhile, the current situation in the market calls for some sober refection on its recent trends. Of late, the market is showing some unsteady signs. It has otherwise been on a strong upbeat mood in an uninterrupted sequence in past several months, with market capitalisation, share prices, daily trade turnover and all other indicators setting new records. Some analysts have termed it a demand-driven push, causing the upsurge. However, the question -- why has the demand been so strong? -- has not been explained well by such quarters. The country's banks are having excess liquidity to the tune of over Taka 130 billion. The demand for bank credits has fallen for reasons of a depressed economic situation. The performance of the real sectors of the economy has been sluggish. New investment activities are not up to the mark. Inflationary situation has continued to aggravate. There are disconcerting signals in most sectors of the economy. The fundamentals of the listed companies have not also shown any marked improvement in most cases.
Then, why is the demand so strong in the stock market? What are the sources of funds causing a strong surge in the demand for shares? Why has so much of investible surplus funds moved to the stock market when those, having such funds are shy of making investments in real sectors, real estates, and other areas where jobs and incomes are created? What are then the privileges, attractions and concessions that have pooled so much of funds to the stock exchanges under today's changed conditions? Businesses have otherwise been complaining about too many questions being asked by different agencies of the government to find out whether the funds that are deployed in their usual course of activities are tax-evaded or corruption-ridden.
The 'flocking' of funds to the stock-market, for whatever reasons, is however, welcome. Investments in stock exchanges are considered 'safe-havens' in many countries of the world. If those having surplus funds consider it hassle-free to make investments in shares under the conditions now obtaining in the country, they are, perhaps, committing no wrong. But the question yet then arises will such investments yield any worthwhile sustainable benefit to them, in ferms of returns, if the prevailing mismatch between the situation in the stock exchanges and that of the real sectors of the economy continues and also if the market prices of shares grossly run afoul of the fundamentals of the companies, for long? The concerned authorities of the government do need to ponder over this situation very seriously if they want development of the country's capital market on a sustained basis. When the demand is so strong in the market, they should take some immediate steps to help augment supplies of stocks. Otherwise, the growing imbalance between demand and supply will sooner or later lead to market crash.