Good governance should be the priority of the securities regulator and the central bank in 2023 to reduce volatility in the capital market and rejuvenate it.
The major challenges that the stock market faces are liquidity crunch, low trade volumes, and scanty participation of investors, says Shahidul Islam, chief executive officer at VIPB Asset Management Company.
It is necessary to boost activities of foreign investors. The number of such investors has dwindled in the recent months due to the high volatility in the exchange rate and the floor prices hindering stocks' movement.
If the Bangladesh Securities and Exchange Commission regulates the listed companies protecting the interest of investors, the market will see an increase in investor participation.
It is very important to allow the market forces to determine prices of financial products, such as loans, deposits, securities, foreign currencies, and insurance coverage.
The insurance regulator's role is to ensure the solvency of the insurance funds/companies and rights of the policy holders.
The safety of depositors' money is paramount. "The banks must have adequate capital aligned with the latest capital adequacy standards, such as Basel-III."
Under Basel-III, an internationally agreed set of measures, the banks strengthen their capital base along with improving regulation, supervision and risk management.
Depositors' money is at risk if the bank's capital base is weak.
The banks should no way be allowed to delay provisioning against actual and potential losses from loans and investments.
"Fixing interest rates or exchange rates of foreign currencies is not a job of the regulators". These controlling mechanisms restrict the capital flow, impeding the development of the markets.
Having suffered in the bearish stock market this year, investors should consider holding treasury bonds along with stocks and corporate bonds issued by creditworthy companies.
"The government bonds are safe investments when the financial markets are in a turmoil and the yields on such bonds and bills are high at this moment," said Mr. Islam, adding that the yields from government bonds are higher now than interest on deposits at many banks.
The dramatic shift in the global macroeconomic environment, especially the tightening of monetary policies around the world affected the stock market in 2022.
The disruption in the global supply chain during the pandemic and then high commodity prices due to the war in Ukraine affected Bangladesh's economy and its financial market. Local factors, such as the lack of governance at the banks and corporate regulations fueled the crisis further.
"As the commodity prices in the global market are coming down, the inflationary pressure in Bangladesh will cool off in 2023." In that scenario, ensuring good governance at the banks and corporate companies will be the key to a stable capital market.
