Where rumours are money-spinners
Wednesday, 15 October 2008
Shamsul Huq Zahid
City's Motijheel is not the Wall Street, the global financial capital. Nor is the Dhaka Stock Exchange (DSE) located in New York or in any of the major global financial centres. Yet the DSE claimed to have tasted the jolt of the ongoing global financial market meltdown for the first time in its history last Sunday!
There was a panic selling of shares by small investors and the DSE's general index nosedived shedding more than 80 points within hours of the day's trading, notwithstanding the fact the investors showed no signs of panic during the previous week when markets in Asia, Europe and the USA witnessed severe erosion in stock prices.
Was Sunday's decline at DSE a normal price correction or was it really triggered by the developments in the global market?
The statements issued by the top officials of the DSE and the Securities and Exchange Commission (SEC), the capital market regulator, issued at a hurriedly called press conference soon after the last Sunday's trading did indicate that panic selling had something to do with the global financial market turmoil. However, they, in a bid to restore confidence, advised the investors not to be panicked because of the fact that the Bangladesh market was insulated from external shocks and the foreign portfolio investment in the local stock market was very negligible.
The officials of the SEC and the DSE did make correct observations about Bangladesh economy as well as the capital market. Never before the bourses in Bangladesh had any impact of the global financial market developments, including that of the Asian financial crisis of 1997. In 1997, the Bangladesh stock market was dull and deserted following the bubble burst in the preceding year.
However, the question is: how could the officials know that the Sunday's market decline was somehow connected with the global market turmoil? Was it their sixth sense? Or, did they get information from authentic sources that some people were pulling the market down spreading rumours involving the stock market situation abroad?
Investors, apparently, paid attention to the SEC and DSE advice and there was a reversal of the situation. The erosion in stock prices was more than recouped during the next couple of days. But it appears rather strange that the investors did not pay any heed to observations made throughout the last couple of weeks by economists and market experts of repute that the Bangladesh economy was unlikely to suffer much from the ongoing turmoil because of its low-level of integration with the global financial markets. Thus, the market turnaround on Monday did only indicate the faith our investors have in the high officials of both SEC and the DSE.
There is no denying that the Bangladesh share market is now more vibrant and dynamic than before. Yet some people do smell some foul play in the price movement of shares. They suspect that some investors having both influence and resources are fooling a large number of small investors to make their own fortunes and some other players in the bourses might have lent their support to them.
The main tool used to misguide investors is rumour which is aplenty in the stock market these days. The market itself is now a rumour mill. The incident of last Sunday was a part of a calculated game played by that particular band of investors. This was evident from the record turnover at the DSE on last Sunday. There was panic- selling as well as strong buying support from big investors who might have engineered the game. The latter have already made millions by disposing of the shares that they had bought last Sunday. This is an art described in Bangla as, Koier tele koi bhaja (which implies frying a fish with its own oil).
It was, however, clear from the statements from the SEC and DSE high officials on last Sunday that they, too, suspected some wrongdoing by some people. That is why they advised the investors not to be guided by rumours. The DSE website does also constantly advise the investors not to go by rumours and make investment on the basis of company fundamentals. But the problem is that rumour-mongers have concentrated more on companies with strong fundamentals and dish out rumours that hook the investors well. Not many investors try to see closely whether the rumours about attractive dividends justify the abnormal stock prices of companies even with strong fundamentals.
Small investors, who have a herd instinct, do neither have clout nor money to influence share prices. As mentioned above some strong players are active in releasing all the rumours in the market and take benefit out of it. The responsibility lies with the SEC to find out those players and expose them, if it can. Otherwise the rumour mongers would cause a lasting damage to the market with many investors again leaving the market for good. Does it sound very pessimistic?
Zahidfe@yahoo.com
City's Motijheel is not the Wall Street, the global financial capital. Nor is the Dhaka Stock Exchange (DSE) located in New York or in any of the major global financial centres. Yet the DSE claimed to have tasted the jolt of the ongoing global financial market meltdown for the first time in its history last Sunday!
There was a panic selling of shares by small investors and the DSE's general index nosedived shedding more than 80 points within hours of the day's trading, notwithstanding the fact the investors showed no signs of panic during the previous week when markets in Asia, Europe and the USA witnessed severe erosion in stock prices.
Was Sunday's decline at DSE a normal price correction or was it really triggered by the developments in the global market?
The statements issued by the top officials of the DSE and the Securities and Exchange Commission (SEC), the capital market regulator, issued at a hurriedly called press conference soon after the last Sunday's trading did indicate that panic selling had something to do with the global financial market turmoil. However, they, in a bid to restore confidence, advised the investors not to be panicked because of the fact that the Bangladesh market was insulated from external shocks and the foreign portfolio investment in the local stock market was very negligible.
The officials of the SEC and the DSE did make correct observations about Bangladesh economy as well as the capital market. Never before the bourses in Bangladesh had any impact of the global financial market developments, including that of the Asian financial crisis of 1997. In 1997, the Bangladesh stock market was dull and deserted following the bubble burst in the preceding year.
However, the question is: how could the officials know that the Sunday's market decline was somehow connected with the global market turmoil? Was it their sixth sense? Or, did they get information from authentic sources that some people were pulling the market down spreading rumours involving the stock market situation abroad?
Investors, apparently, paid attention to the SEC and DSE advice and there was a reversal of the situation. The erosion in stock prices was more than recouped during the next couple of days. But it appears rather strange that the investors did not pay any heed to observations made throughout the last couple of weeks by economists and market experts of repute that the Bangladesh economy was unlikely to suffer much from the ongoing turmoil because of its low-level of integration with the global financial markets. Thus, the market turnaround on Monday did only indicate the faith our investors have in the high officials of both SEC and the DSE.
There is no denying that the Bangladesh share market is now more vibrant and dynamic than before. Yet some people do smell some foul play in the price movement of shares. They suspect that some investors having both influence and resources are fooling a large number of small investors to make their own fortunes and some other players in the bourses might have lent their support to them.
The main tool used to misguide investors is rumour which is aplenty in the stock market these days. The market itself is now a rumour mill. The incident of last Sunday was a part of a calculated game played by that particular band of investors. This was evident from the record turnover at the DSE on last Sunday. There was panic- selling as well as strong buying support from big investors who might have engineered the game. The latter have already made millions by disposing of the shares that they had bought last Sunday. This is an art described in Bangla as, Koier tele koi bhaja (which implies frying a fish with its own oil).
It was, however, clear from the statements from the SEC and DSE high officials on last Sunday that they, too, suspected some wrongdoing by some people. That is why they advised the investors not to be guided by rumours. The DSE website does also constantly advise the investors not to go by rumours and make investment on the basis of company fundamentals. But the problem is that rumour-mongers have concentrated more on companies with strong fundamentals and dish out rumours that hook the investors well. Not many investors try to see closely whether the rumours about attractive dividends justify the abnormal stock prices of companies even with strong fundamentals.
Small investors, who have a herd instinct, do neither have clout nor money to influence share prices. As mentioned above some strong players are active in releasing all the rumours in the market and take benefit out of it. The responsibility lies with the SEC to find out those players and expose them, if it can. Otherwise the rumour mongers would cause a lasting damage to the market with many investors again leaving the market for good. Does it sound very pessimistic?
Zahidfe@yahoo.com