Stock market: Belied expectation

Many had pinned their hope on a possible turnaround in the fortune of the Bangladesh stock market following the much-hyped purchase of 25 per cent stake of the Dhaka Stock Exchange (DSE) by a Chinese consortium.

But the developments in bourses until now have belied their expectations. The indices on occasions showed signs for a positive change, but it did not last  long. The main index of DSE, apparently, coming under the influence of a centripetal force tends to revolve round the 5500-point mark. 

Expectation that the entry of the consortium formed by two leading bourses of China, a global economic powerhouse, would help overcome the moribund state of the DSE is very much logical. The participation of the Chinese consortium is likely to bring positive results for management of the DSE. There could be a noticeable change in the management style of the country's premier exchange after a certain period of time. The Chinese consortium, obviously, has not invested a substantial amount of money for nothing. They would try to reap a handsome dividend on their investment by ensuring better management of a demutualised DSE.

But much would depend on the state of the market. If the current trend prevails, the Chinese strategic partner would curse itself for choosing the Bangladesh market. The failure of the market to respond positively to the entry of the Chinese consortium is not a good sign. This is again highlighting the deep-seated malaise that has been hurting the Bangladesh stock market for long.

The fact remains that the country's stock market is yet to recover from the jolt it had received from its crash in 2010. The shock that had come nearly 14 years after the first bubble burst in 1996 appears to be too much for the genuine investors. They, it seems, are not ready to believe that things could be straightened up again. However, it is difficult to say whether there have been genuine efforts on the part of the relevant agencies to right the wrongs done in the past by a section of market players.

There is no denying that the securities regulator, the Bangladesh Securities and Exchange Commission (BSEC), has formulated certain laws and rules to deal with anomalies in the stock market.

But the problem lies with the enforcement. Poor enforcement of laws and rules, however, is a national problem.

The participation of investors in the market has been at a very low level since the latest market collapse. There has been a lot of hullabaloo over the involvement of manipulators in stock trading. And relevant agencies were found quite active to punish the manipulators. But things have not progressed much. Small-scale manipulation is still there and none seems to be interested to eliminate such activities.

The sudden jump in the prices of junk shares is a case in point. When a few shares having good fundamentals are being traded at prices below their potentials, the reason for junk shares being too hot is not understandable to many. There must be some people behind such manipulative activities.

Since the collapse of the market in 2010, the act of subscribing IPOs has remained most attractive investment option for investors. On debut trading, new issues are quoted at prices five to six times higher than their respective face value. The high-price trend continues for some weeks and then the prices start falling.  The investors who purchase these issues late do often incur substantial losses.

Besides, the scrutiny of IPOs, particularly in the matters of their financial performance, has not been strict enough.  The companies seeking permission to float IPOs (initial public offerings) usually in their prospectuses mention very attractive dividend payments in the years preceding the IPO floatation. The financials submitted with the IPO applications do also substantiate high profit earning.  However, securing doctored financials has never been a problem. The government has enacted the Financial Reporting Act and formed a Financial Reporting Council (FRC) to stop such wrongdoing.  It is expected that the FRC would soon stop malpractices in areas of auditing. This is very important for developing a healthy corporate culture.

It is widely admitted that there exists a gross mismatch between the performance of the capital market and that of the national economy. Usually, the stock market remains buoyant in a vibrant economy.  The situation has been the opposite for quite many years. The relevant government policymakers do prefer to avoid any mention of the capital market. Even the finance minister has made very sketchy remarks on the capital market in the national budget.

But any escapist attitude of the government as far as capital market is concerned would not help the economy anyway.  The capital market remains a major source of long-term investment. In the absence of a healthy capital market, banks have become a major source of long-term investment in Bangladesh. But while doing so the banks are encountering all sorts of problem. So, the government has to give up the tendency of avoiding the ills of the capital market and address the same in their right perspectives. 

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