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Is market buoyancy genuine?

Shamsul Huq Zahid | Published: January 15, 2017 21:20:39 | Updated: October 24, 2017 03:28:52


The stock market is in an upbeat mood. If not in terms of flow of investors, turnover and indices are indicative of a surge. Since the introduction of new indices on January 28, 2013, the general index at the Dhaka Stock Exchange (DSE) reached its highest level on last Thursday with the turnover at the bourse rising to more than Tk 15 billion. The turnover was the highest--over Tk 17 billion-- on the previous day since the collapse of the market in December 2010. 
The market has been rising for nearly a month. Lately, it has gathered pace.
 But is the rise a genuine one? 
This particular question is haunting many minds. A section of so-called market analysts and stoke brokers is found always ready to put forward suggestions in support of a buoyant market, artificial or otherwise. 
Commenting on the ongoing market rally, one analyst listed possible healthy dividend declaration, high market liquidity, declining deposit rates etc., as reasons for the market buoyancy.  There will be many others operating at the DSE and asset management companies (AMCs) to subscribe to such a view. 
They are, rightly or wrongly, trying to give an impression that what is happening in the market is quite normal and there is no reason to be suspicious about it. Maybe, they are right or maybe, not.  
But the capital market regulator is suspicious. And that should not escape the notice of all stakeholders, including general investors. The regulator convened an urgent meeting on January 11 and expressed its concern over sharp rise of indices and turnover. The meeting attended by the chairman and all members of the Bangladesh Securities and Exchange Commission (BSEC) asked all departments of the commission to identify 'unlawful' activities, if there is any, by checking 'the alerts of surveillance software'.  The departments were also advised to monitor any artificial move taken to influence the market. 
The BSEC has been trying relentlessly to streamline rules and regulations concerning the capital market. It has already put into effect some important changes. But the commission can hardly ignore any move to inflate the market artificially by a section of market players who are otherwise very powerful because of their political links. 
Prior to the ongoing surge, the market was stable and steady, marked by normal price movement of stocks. The daily market turnover was between Taka 5.0- 7.0 billion mark.  Looking at the current mood of the market, one obvious question that should agitate the mind of an investor: why is the sudden market surge? 
Banks disclosed their operating profits at the end of the calendar year 2016. But the market was rising almost unabatedly weeks before such a disclosure. Besides, operating profits by private bank do not necessarily guarantee any healthy dividend for a good number of the banks have substantial volume of non-performing loan burden. 
One positive aspect of the market was that the country's stock market had a record amount of equity funds-US$48 million--- in the year 2016. The amount being too small, however, does not have the capacity to influence the market. 
There could be some behind-the-scene manoeuvring to pull the market. And the price movement of some shares does suggest such a possibility.  
 For instance, Beximco and a few other stocks have been dominating the daily turnover charts with 'unusual' price rise. In response to a DSE query, the Beximco management said the company had no any 'price sensitive' information for the moment. Some 'junk' shares also witnessed hike. 
Since December 20 last, out of 15 trading sessions, the DSE indices recorded rise in 14 sessions and there was minor price correction in one session. The main DSEX rose by 8.12 per cent or 402 points to close at 5333 points. Since December 20, the turnover rose nearly by 84 per cent and closed at above Tk 17 billion on last Wednesday.  
An attempt is there to pull the investors towards the market. The attendance of investors in brokerage houses has increased, but not much. Investors have witnessed in the recent past a few small and short-lived 'bubbles'. In the absence of investors' support these bubbles had gone off within days or couple of weeks. There is no guarantee that the current one would last long. 
In fact, the attempts to buoy up the market artificially have done more damage than good.  The BSEC should make extra efforts to detect any wrongdoing involving the market. This is necessary to safeguard the progress made so far towards ensuring a stable market through normal process. 
zahidmar10@gmail.com


 

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