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When data manifests sheer frustration of investors

MOHAMMAD MUFAZZAL | June 11, 2024 00:00:00

Zahirul Islam (not the real name) gave Tk 2 million to Midway Securities on Sunday to buy Treasury bonds from the auction scheduled for Tuesday.

He had liquidated his entire equity holdings at a loss of Tk 0.6 million to take a position in the fixed income securities. The money will remain invested in the government securities for the next five years for a secure return at more than 12 per cent annually.

Mr Islam does not mind that he would not have any cash to inject in stocks.

Another client of the same brokerage firm deposited Tk 0.7 million to purchase T-bonds. He generated the fund by liquidating equity assets that he had purchased at around Tk 1 million.

Managing Director of Midway Securities Md. Ashequr Rahman said investors were moving money to fixed-income securities out of frustration over the persistent erosion in the equity market.

Usually, investors are ready to incur losses up to 20 per cent in some securities in a bid to take positions in other listed securities in an abrupt situation. But no one wants to endure a loss as high as 30 per cent.

"The investors [mentioned above] have made the move with extreme frustration over the market situation," said Mr. Rahman.

He finds a correlation between the rise in the number of BO (beneficiary owner's) accounts with zero balance and his clients who have liquidated their entire equity holdings.

He said both his clients would not return to the stock market in near future.

"The decline in the number of BO accounts with zero balance indicates that many investors have left the market or shifted investment positions," Mr Rahman said.

According to the Central Depository Bangladesh Ltd. (CDBL), the number of BO accounts with zero balance rose 24 per cent to 0.39 million in the last three months to Monday.

During the period, the DSEX, the broad index of the Dhaka Stock Exchange (DSE), lost 16 per cent or 1007 points.

Many investors have witnessed erosion in their portfolios higher than the index, said another market operator.

Apart from different macroeconomic factors and the price restrictions, the government's lack of attention to the market was also held responsible by market operators for the present scenario.

The proposed budget for FY25 added to the pessimistic sentiment.

Market operators and investors found nothing in the budget to get back confidence in equity securities.

Rather, the government has imposed capital gain tax on individual investors for the return exceeding Tk 5 million.

On the other hand, the gap between the rates of corporate tax paid by listed and non-listed firms narrowed since non-listed companies will have to pay a lower tax in FY25 than the current year.

The lack of fundamentally strong companies in the market is another big reason.

Experts say the long-term financing by banks hinders the listing of good companies.

"The government should pay attention to the market for the greater interest of the national economy," said Mr Rahman.

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