When policymakers say something about the country's stock market, it seems that everything is running fine in the market and that the market is witnessing improvement with no setback in sight. But the reality, which is felt by the investors and close observers, is that the market is at a standstill. To them, it is neither moving forward, nor backward. Sometimes, the gamblers are found to be reigning in with the small-cap stocks.
Most of the investors, having Beneficiary Owner (BO) accounts with the brokerage houses, are either out of the market or inactive. When the Chinese consortium of two stock exchanges purchased 25 per cent stake in the equity of Dhaka Stock Exchange (DSE), many investors hoped that the market this time would see a positive movement. But they now appear to be lost in despair. They have also started realising that Chinese involvement has nothing to do with the movement of the bourse.
Most of the investors, very often quite naively, want to see the prices of stocks always going up. To them, good thing on the bourse means increase in prices of the stocks. But this is a dangerous yearning. If prices of stocks go up belying the fundamentals, this brings danger for all. Only a few get benefited from such a scenario and with most incur loss. There must have causes behind bull runs on the stock market - either the economy should be growing beyond expected rate or corporate results must be better than expectation or tax rates must favour the corporate world or some technological breakthroughs must raise investors' expectation.
A normal stock market behaves with no sharp ups or downs - prices of stocks move depending on the earnings of the stocks and the relevant factors in the economy. All the big scandals on the bourses across the world took place during the periods known as bull runs. Bangladesh's stock market is very small. Most of the listed companies are non-performers, they pay little dividend or no dividend to the investors.
The conditions of three dozen mutual funds are even grimmer, as no investors these days trust the fund managers. Buyers are not ready to buy mutual funds even at 30 per cent discounts on their net asset values (NAVs). Even the banking sector stocks are failing to perform. Many of the listed banks are failing to make provisions against bad loans. There is no reason that the banks' balance sheets would be cleaner soon. Most of the textile stocks turned red within two to three years of their listing with the bourse. A few multinationals are still paying good dividends to the investors, but the yield rates from the holding of those stocks are too low due to high prices of those stocks.
In the last six years, investors did not get any new initial public offering (IPO) from the reputed companies. Some of the sponsors, who took money through IPOs, did not even hesitate playing dirty tricks with the investors. In the very first year or immediately after their expiry of the lock-in period following the floatation of IPOs, they were found to have sold part of their stocks in the market while still continuing managing the companies, taking salaries and exploiting the companies in many other ways. Very few investors could make profit by investing in those IPOs and keeping the same as long term investment.
Bangladesh Securities and Exchange Commission (BSEC) takes credit for making a large number of regulatory orders. May be the regulator is right in making the regulatory orders, but the reality is that the orders seldom help the market improve. Neither could BSEC protect the investors' interest, nor could it help the market grow providing it with quality stocks. A situation where there are too many regulations with too few good stocks is like putting the cart before the horse.
Very often, it is heard from the policymakers that the stock market should become a hub of capital to serve the economy. But when the time for policy support comes, they are found nowhere. Top policymakers often mention that corporate income tax is higher in Bangladesh compared to many other countries. But they do not act when the issue comes to the fore.
Businesses should be offered some extra incentives in the interest of bringing quality stocks in the market. Exact incentives can be sorted out by holding talks with management of the companies which are still reluctant to get listed.
Abu Ahmed is Professor of Economics, University of Dhaka.
