The launch of BF

The much-hyped Tk. 50-billion open-ended mutual fund, the Bangladesh Fund (BF), came into operation last Thursday. The fund was conceived in a hurry by the policymakers to boost the investors' morale in a plunging market hit by a scam having far greater dimension than that of 1996. Retail investors in their thousands are still licking wounds and the market is unlikely to witness any major turnaround anytime soon. When the formation of the BF was announced with primary equities from the state-owned Investment Corporation of Bangladesh (ICB) and five banks - Sonali, Janata, Agrani, Rupali and Bangladesh Development Bank-and two insurers - the Sadharan Bima Corporation and the Jiban Bima Corporation, there was an initial euphoria at all levels. The market reacted positively and indices went up as the news broke about the formation of the BF in March last. But, interestingly, the market almost ignored the launch of the fund last Thursday with its main barometer, the DGEN, shedding nearly 74 points. Despite the fact the investors were in an upbeat mood in the initial hours of trading on the day a low volume of purchase by the fund, apparently, created a sense of frustration among the retail investors, leading to a sell pressure in the late hours of trading. The journey of the BF, at least, for sometime is unlikely to be smooth one as the prevailing market conditions remain quite difficult. The co-sponsors of the fund are supposed to mobilize funds worth Tk 12 billion for investment in stocks and money market instruments at a ratio of 75 and 25 respectively. The ICB, the lead sponsor and fund manager, may face difficulty in choosing the right kind of stocks with price earning (PE) ratios within the ranges fixed by it. The fund manager, reportedly, has decided not to invest in non- banking stocks having price earning ratios above 20. The ratios for banks and non-banking financial institutions are 10 and 15 respectively. The PE ratios of a good number of banks and mutual funds are now within the chosen range but those of most issues belonging to other categories are far above the range, making them off-limits for investment. The ICB, the oldest and most-experienced fund manager, cannot make risky initial investments on behalf of a fund that plans to mobilize Tk.38 billion from general investors later through initial public offering (IPO). This obvious caution being exercised by the fund manager is unlikely to make any major impact on the market since most stocks belonging to sectors other than banking and investment are still over-priced. Then again the sponsors might find the prevailing situation is rather unfavourable for floating such a large mutual fund for public subscription. Unfortunately, not many investors in Bangladesh are attracted to mutual funds which are considered risk-free and reasonably profit-earning investments. At the moment, mutual funds have the lowest PE ratios and some of those are now being traded below their face value. It may sound, to some extent, pessimistic but the fact remains that the BF alone is unlikely to make any major breakthrough in the prevailing market conditions with key investors such as banks and non-banking financial institutions, now troubled by severe liquidity crunch, remaining absent. The banks that are also blamed widely for making the stock market over-heated through their over-exposure are unlikely to return to the market soon. So, the BF may be successful in boosting the market to a limited scale but not up to the expectation of the policymakers, at least, in the short-term.