Careful watch on stock market needed

| Updated: October 24, 2017 08:25:27

Careful watch on stock market needed

Investors are again flocking to the share market. Brokerage houses are becoming active with the presence of investors. As a result, turnover and index are rising every day. In last 14 working days of 2017, the index of Dhaka Stock Exchange rose by about 450 points. Turnover increased by over Tk 10 billion. Analysts and stock market-related persons are concerned. Khandakar Ibrahim Khaled, former Deputy Governor of Bangladesh Bank, said the recent rise in the market does not appear to be normal and spontaneous. Some people might have been attracted to the share market because of lower interest rate on bank deposits. The newcomers in the market have to be careful. Current trend may not be the real strength of the market.
 Some of those who lost interest in stocks after their collapse in 2010 are returning to the market. Newcomers are also showing interest. The market has started rising from last November. Turnover has reached the level of 2010. During the middle of last year, speculations were there that the stock market condition would be better in 1917. Last December, the Chairman of the Securities and Exchange Commission said in the opening ceremony of the capital market fair that even if the index goes up to 10,000 due to its own strength, there should be no reason to stop it. This has added further momentum to the market. One director of the SEC said no situation has arisen to worry about the stock market.
Because of lower rate of bank interest and limited investment opportunities, many people have become interested in share market. Shares were undervalued for a long time. That is why local and foreign investors have become interested in the share market. A spokesman of the SEC has said there is a need for natural and sustainable market. All concerned have to go by rules and laws and should not try to make stocks high- priced. There was slump in the share market. The Finance Minister said during the next two years, the share market will be on a firm footing. The SEC has warned all concerned about different techniques of artificially raising the prices of shares.
On January 18, stocks faced a sharp rally. Correction occurred as the market witnessed a substantial gain in the few trading days. But such pullback in the index can be considered as normal correction in the market. The market opened with high optimism and key index crossed 5,600 mark within a few minutes but ultimately ended about 42 points lower. The market witnessed frequent ups and downs throughout the session. The Chittagong Stock Exchange also closed lower
The stock market is getting back its rhythm missing for about six years. The escalation of turnover and index suggests that confidence in the market is coming back. It passed a decent year in 2016. It will be stronger, given the promising market fundamentals. Faruk Ahmed Siddiki, former Chairman of the SEC said, there is no sign of abnormality. The Bangladesh  Securities and Exchange Commission held a meeting on January 20 with the capital market stakeholders asking them to strictly follow the rules and regulations so that the market can avoid any abnormal movement. The SEC took many measures for development of the capital market in the last five years which helped to bring back investors' confidence gradually. A large number of institutional and foreign investors also returned to the market which was reflected in a recent bullish trend in the index and turnover. The market is now transparent and investors should check directly with a company instead of depending on rumours.
Share market is always risky. One has to be careful while making decisions to invest there. Share market investment should come from surplus funds. The SEC Chairman said in a press conference that the steps taken by SEC have encouraged the investors. As a result, the market has become dynamic. The Managing Director of the SEC said at the same meeting that foreign investment in share market has increased recently. It is globally recognised that share market is a risky business. There is scope for profit and loss. One director said that in 2010, the ICB bought shares and made the market unstable. Banks also made investment crossing limits and Bangladesh Bank did not take any initiative at the right time.
The current situation is different from that of 2010. In that year, people used to hold stocks and did not sell those easily. But at this time shares are changing hands frequently. People sell shares if there is a small increase. This is a positive sign.  Recent upsurge in the market appears to be fast. Thereafter, there was correction for two days .This was a good sign. But uninterrupted gain is a cause for concern. Normal practice is that the market make advance through ups and downs. This makes the market sustainable. There is nothing to worry about the current index. One weakness of our market is that the prices of shares of weak companies rise faster. During the last few years, not many good companies have come to the share market.
Those responsible for fraud in the past have come to the field again. This syndicate has become active to conduct their tricks. They looted billions of Taka in1996 and 2010 at the cost of ordinary investors. It is against this backdrop that people have been advised to be careful and not to sell ornaments, cows and other properties to buy shares. The SEC also has to see who are engaged in unnatural transactions. Strict vigilance is needed on the market. Investors must be careful.
The writer is an economist 
and columnist 
[email protected]

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