The Bangladesh Bank (BB) on April 27 last softened its stance on banks' compliance with capital market exposure limit in response to requests from a section of stakeholders. The latter had expressed their fear that stock prices would plunge further if the Bank maintained a rigid attitude.
But, much to the surprise of the market pundits, the erosion in stock prices continued as before despite the central bank's so-called policy support. DSEX, the main index of the Dhaka Stock Exchange (DSE), had shed 188 points or 4.35 per cent during last seven trading days until last Monday to reach the lowest level in one year's time.
However, following reports on the market situation in a number of newspapers on Tuesday, the stock prices bounced back on the day with the DSEX rising by nearly 2.5 per cent. But the total value of transactions on the day was half a billion taka less than that of the previous day. Whether the market reversal was spontaneous or managed is hard to say for in the past there were a few instances of artificial stock price management. The securities regulator, apparently, has always ignored such small-scale manipulation.
In fact, the stock market should have been a little bit buoyant by now, even without any sort of policy support from the central bank. The people having surplus funds and the small savers, under the prevailing circumstances, were supposed to return to the market hoping for a better return on their money. Banks are now offering a very poor rate of return on all types of deposits, even less than the current rate of inflation against term-deposits. The rates of yield offered in the case of government's savings tools also have been reduced and pressure is on to reduce the same further.
The people can invest in gold, but that is not considered a safe option because of the prevailing law and order situation. That is why people are now talking sarcastically about the return to the days when people used to store money in bamboo poles or earthen pots, buried underground.
It has become more of a fashion to cite the 'lack of confidence' as the primary cause behind the investors not coming to the stock market. After the collapse of the market, such a response from the general investors is nothing unusual. But if seen in the context of the 'return on investment', there are ample reasons even for the informed investors to stay away from the market.
There is no denying that a good number of listed issues do offer handsome dividend annually. But on the basis of market price of those issues, the actual return remains very unattractive. Besides, the return of the investors in large numbers is likely to push up their prices further, making the dividend income even smaller.
However, there are some listed issues, including banks that are offering 'acceptable' return on investment. Their market prices are also very much reasonable. But investors exercise caution while investing their money in those. Scams and reports on financial health of most banks have made the investors sceptic about banking institutions.
Why would anyone enter a market where prospect of getting a reasonable rate of return from short-term trading or dividend income remains slim?
In the absence of such an opportunity, a section of investors have concentrated on the short-term trading of primary stocks. The securities regulator's magnanimity in the matters of allowing premium to initial public offerings (IPOs) until recently made the situation even worse. Many investors by engaging their funds in premium-bearing new stocks suffered substantial losses as the market prices of a good number of such stocks had come down almost to their face value within a very short period.
So, the lack of confidence emanating from the collapse of the market is not the only issue. The shortage of quality issues and the rate of return on investment, both in short and long terms, are two important issues that more or less escaped the attention of the market players and regulator concerned.
Bangladesh stock market, to some extent, is still shallow after all those years. Many prospective local and multinational companies have been deliberately staying away from the capital market. True, some companies are unwilling to expose themselves to public scrutiny by becoming listed. But the very image of the stock market following the two major scams -- one in 1996 and another in 2010 -- acts as a great disincentive. There have not been enough serious efforts to improve the market's shattered image.
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