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The Dhaka Stock Exchange (DSE), Bangladesh's main financial marketplace, has now been on a steady upward climb for eight consecutive weeks. During this gaining streak, the benchmark DSEX index crossed the 5,400 mark for the first time since last November. The index surged by 5.06 per cent in the third week of July to settle at 5,392 points on July 24, 2025, posting its strongest weekly performance this year. After that, the index stayed mostly steady before jumping again to close at 5,443 points on July 31. This continued upward trend shows that buyers are still confident and willing to invest rather than taking quick profits. More broadly, given how the stock market often reflects public sentiment about the country's financial future, this growth suggests their growing confidence in the economy.
This positive trend is all the more remarkable considering everything the market has been through. For example, the threat of a 35 per cent US tariff on Bangladeshi exports hung heavily during this entire period of stock price gains. Meanwhile, wars raging worldwide have disrupted trade routes impacting Bangladesh's export-dependent economy, and domestically, a mass uprising has made businesses wary of future investments. Yet, these challenges haven't dampened the market's spirits.
This infectious enthusiasm for investing is precisely what had been missing from the stock market. For a long time, the market had struggled under the weight of deep-rooted problems, including structural inefficiencies that steadily eroded investor confidence. One major issue was the floor-pricing mechanism imposed by the Bangladesh Securities and Exchange Commission (BSEC) in March 2020 to prevent a pandemic-induced crash. While the measure temporarily halted the freefall, it distorted market dynamics for years. Most of these restrictions were lifted in January 2024 with the rest removed by August. During the period the floor was in place, the index fluctuated between 3,963 and 7,368 points, though it hovered mostly around the 6,000 mark. Once the floor was removed, many investors worried about rising interest rates and the country's balance of payments deficit rushed to sell their shares.
There were other long-standing problems too which continued to prevent the market from functioning efficiently. Among them were persistently low liquidity, limited investor participation and a drying up of the pipeline of new listings. Average daily trading volumes has fallen sharply from over Tk 1,500 crore in FY 2021 and 2022 to just Tk 600 crore in FY 2024. It is worth noting that much of the earlier highs were driven more by speculation than by fundamentals, a practice often described as share gambling. While some degree of speculation exists in all stock markets, trading based purely on rumours is damaging in the long run. The declining daily turnover in 2024 also resulted from a liquidity crunch, including a decline in foreign exchange reserves from $48 billion in August 2021 to under $21.8 billion by December 2023, driven by reduced demand for Bangladesh's key export ready-made garments amid global economic slowdowns.
Adding to the woes, the DSE failed to attract any new initial public offerings (IPOs) in FY 2024-25. Even in previous years, the flow of new companies had been slow, and those that did join were not well-known enough to attract strong investor interest. Of the 359 active companies listed on the DSE today, market insiders say only a few dozen are solid choices for long-term investment. Meanwhile, big names such as Unilever, Nestlé, MetLife, Banglalink and Incepta still avoid the stock market and remain private. This has kept the DSE's market size from growing and dulled its appeal to foreign investors.
Usually, when a central bank tightens monetary policy to control inflation, it reduces money supply and slows economic activity, typically leading to lower corporate profits and declining stock prices. Bangladesh Bank has followed this path since early this year and kept a tight monetary stance to combat inflation. Surprisingly, this hasn't dampened stock market performance. That may be because there were some supporting factors that helped offset the pressure. For instance, remittances have remained strong, the banking sector has shown tentative signs of recovery and expectations of economic reforms under the new government have lifted investor confidence. However, as is often the case, the primary driver of rising stock prices in Bangladesh has been the return of both retail and institutional investors chasing quick returns, driven more by speculative fever than sound financial analysis. Many are buying stocks based on market rumours and herd mentality rather than evaluating key fundamentals like dividend yields, earnings per share or company asset values. This sentiment-driven trading dramatically increases market volatility. History shows that when confidence in the market wavers, these same investors can exit just as quickly, leaving shar declines in stock prices in their wake.
The bottom line is that investor interest in the DSE is clearly coming back. News that companies like Ashuganj Power Station Co. Limited and Essential Drugs might get listed has added to the excitement and further fuelled demand. A few good IPOs could increase stock supply and support further growth. But to keep things on the right track, investors must proceed with caution. Just because the market is rising doesn't mean it's wise to rush out and blindly buy stocks. Over the long term, company profits are what drive stock returns. If share prices climb too high without matching growth in earnings, returns will stay low and the market could be setting itself up for another painful fall. Let's hope this time the lessons of the past aren't ignored.