The move to form a special fund worth Tk.100 billion for investment in the country's stock market is a welcome one. The officials of the securities regulator, the Bangladesh Securities and Exchange Commission (BSEC) and representatives of associations of different market operators late last week held a meeting and reportedly reached a consensus to create the fund. But the task of mobilising resources for the proposed fund might prove daunting under the given circumstances.
Tk.100 billion is a huge sum. One has justified reasons to doubt the capacity of the market operators, namely, Bangladesh Merchant Bankers' Association (BMBA), Association of Asset Management Companies (AAMC), Capital Market Stabilisation Fund (CMSF) and DSE Brokers' Association (DBA) to make any notable contribution, collectively or individually, to proposed fund. The CMSF could be a big contributor. But the legal bar, as mentioned by the central bank, to transfer the undistributed dividend money of the listed banks to it, has emerged as a stumbling block.
So, the future of the proposed funds remains a bit clouded when the market needs a continuous flow of the same in respectable amounts. The fund flow from retail investors has always been a problem, as they show herd mentality as far as investment in stocks is concerned. Foreign equity investments have also been scanty. Financial institutions, including banks, remain key players in the market. They too have limitations, legal or otherwise.
The central bank keeps a watchful eye on the banks' fund deployment in stocks since banks' overexposure had triggered a collapse of the market in 2010. The BSEC and other market players want substantial involvement of the banks, which are not that upbeat and have been exercising caution. Unless and until institutional investors, including financial institutions, come in a big way, the market is likely to behave erratically. No one knows for sure how long.
One market player has mooted a proposal to float a bond through the CMSF to mobilize a large fund for investment in the stock market. The feasibility of such an option needs to be assessed by the relevant agencies first. There are also legal and procedural issues.
The inflow of sizeable funds alone is unlikely to help achieve market stability. Certain other factors also deserve the priority attention of the key market players. At the top of those should be the addition of enough quality stocks. New issues are being added every year. But the process is not problem-free, and a few dubious companies enter the market, much to the frustration of investors. Lately, the situation has improved, but more needs to be done.
What has been hurting the Bangladesh stock market most is the crisis of confidence. The present commission has been trying to regain that. Yet problems are there. Investors tend to believe that manipulation is still at work in the operation of the market. They cannot be blamed for holding such a view since some bizarre developments often take place in the market. The BSEC and relevant others would have to work together to remove confusions and doubts about the operations of the market.
