DSEX slumps 14pc, market cap sheds 8.42pc in 2018

The capital market ended 2018, a gloomy year for it, as the core index of the Dhaka Stock Exchange (DSE) suffered a 14 per cent loss amid lack of investors' confidence.

People familiar with the capital market said lack of investors' confidence, fear about political turmoil, low participation of institutional investors due to liquidity crunch, and shrinking foreign investment are the factors behind the downward trend.

They also said the sentiment of both domestic and foreign investors was severely dented, which continued throughout the year.

In general, stocks yielded a 14 per cent loss for the investors this year in contrast to a 22 per cent gain in 2017.

Between January 01 and December 27, DSEX, the prime index of DSE, dropped 859 points or 14 per cent to close the year at 5,385 on Thursday, the last trading day of 2018.

As of Thursday, the other indicators of DSE also remained in the negative territory. Most importantly, the investors were struggling to keep their faith on the market.

Market capitalisation of the prime bourse also fell by 8.42 per cent over the previous year to Tk 3,872 billion.

The daily turnover, another important gauge, stood at Tk 5.52 billion on an average, down by 37 per cent year-on-year in 2018.

The DSE market capitalisation to GDP (gross domestic product) ratio fell to 17.21, while the overall price earnings (P/E) ratio rose to 15.09 at the end of 2018.

The CSE All Share Price Index (CAPSI) also lost nearly 15 per cent year-on-year to finish the year at 16,449.

"The investors were not confident enough about injecting fresh funds into stocks amid a dismal market outlook," said an analyst.

The market suffered two crashes - one in 1996 and another in 2010-11.

"The investors had run for exit after the market crash in 2010-11 with fear and anger, and their confidence is yet to be recovered."

The big players behind the crashes are yet to be punished, which is one of the key reasons that the investors could not get back their confidence in the market, he further said.

Although the share prices are favourable now for fresh investment, the market lacks buyers, and it is also not getting any new investor, he noted.

Yawer Sayeed, managing director of AIMS of Bangladesh, said, "The outgoing year was not a good one for stock investors".

He noted that the market witnessed volatility throughout 2018, while prices of "Z" category shares soared, indicating that manipulators are still active in the market.

Various financial crimes, like - fraud, market manipulation and insider trading, are still taking place, whereas the companies' corporate governance are weak and lack transparency.

Mr Sayeed noted that financial indiscipline in the banking sector still remains a big challenge.

The capital market has also failed to keep pace with the country's economic development, which is showing a gradual upward trend.

"The market is suffering from lack of confidence," A B Mirza Azizul Islam, former caretaker government adviser, told the FE.

Actually the investors do not have enough confidence in the capital market since it crashed in 2010, Mr Islam noted.

The market is still grappling with various problems, although a number of reform initiatives have been taken since the stock market debacle.

He also blamed dearth of quality initial public offerings (IPOs) as another reason behind the low confidence of the investors at present.

Mr Islam emphasised bringing good companies to the market for restoring the investors' confidence.

"We need big and reputed companies to be listed in the market."

Multinational companies, operating in Bangladesh, should also be listed in the stock market, as these firms are considered financially sound and fundamentally strong, he opined.

The government should come forward with effective steps to enlist the good state-owned enterprises to increase the market depth, said Mr Islam, also former chairman of the Bangladesh Securities and Exchange Commission (BSEC).

He added that he is not expecting a buoyant 2019 for the stock market unless the authorities bring big and good companies to the market.

Twelve securities, including one mutual fund, got listed with DSE in 2018. With the inclusion of these new issues, the total number of listed securities in the bourse stood at 578.

However, funds raised by the listed companies through issuance of rights shares fell sharply by 76 per cent year-on-year to Tk 2.68 billion in 2018, hitting a three-year low.

The listed mutual funds have become a burden for their investors, as all the 37 mutual funds, except four, are being traded far below their face value.

Khairul Basher Abu Taher Mohammad, chief executive officer of MTB Capital, said liquidity crisis kept the institutional investors under pressure throughout the year.

Mr Bashar, also secretary general of Bangladesh Merchant Bankers Association (BMBA), said the equity of merchant banks and stockbrokers was still in the negative territory. Besides, the banks were not able to increase their exposure to the market due to regulatory requirements.

However, he is optimistic that the market would rebound in 2019.

In 2018, the net foreign funds in stocks were also in the negative territory amounting to Tk 5.93 billion. The overseas investors bought shares worth Tk 44.96 billion and sold shares worth Tk 50.89 billion.

In the year under review, DSE delisted two firms - Rahima Food and Modern Dyeing - for remaining closed for more than three years.

Mostaque Ahmed Sadeque, immediate-past president of DSE Brokers Association, said political tension surrounding the national election as well as major scams in banks and their soaring non-performing loans eroded the investors' confidence.

Although the market failed to get expected return in the outgoing year, DSE got strategic partner that increased its reputation worldwide, said DSE managing director K A M Majedur Rahman.

He said the prime bourse is working for development of the capital market, and it is expected to bring new products in the market by 2019.

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