Stock market: floor price and fading hopes

Whatever faith investors had in the market before the imposition of the floor price is now more or less diminished. In the beginning, they might have felt that their investment would not deplete, but assets are not just numbers on paper. It has to be usable, transferable, and worthy to be benefited from.  
More than a year has gone by since the re-imposition of floor price on stocks. During this time, investors have navigated various economic challenges. The assets, which they wanted to see not going below a certain value [through artificial means], have remained illiquid, preventing them from encashing those.
That had varied outcomes. Investors might have failed to grab lucrative investment opportunities had they come across any. Or, they could not sell assets in an emergency. Or, they might have had to shelve plans for which they were expecting funds from the stock market.
Exposures to such scenarios, I am sure, have changed investors' perceptions of the value of their assets that they see on paper. And, they have developed a pessimistic sentiment about the market.
What is more damaging is that such sentiment will only spread and intensify with time across the class of investors. The other day a national daily reported on how illiquid investments in securities have been eating into banks' profits. These investments were actually from deposits in banks. Lower profits resulted in lower dividends to shareholders. Representatives from banks said they would not risk investing in stocks any further in a stagnant market.
The market is a place where the value of assets -- a stock for example -- is determined by people's perceptions. No good or service that is worth Tk 100 now can be Tk 120 the next day. In terms of quality or material, nothing changes. What changes is people's perceptions about it -- maybe because of an earnings disclosure or the outcome of a business deal or a lawsuit. So, when investors think a stock is good to invest in, they put bets on it. As demand goes up surpassing the supply, the stock price climbs. The situation takes a reverse turn when a stock is thought to be a bad investment.
This entire process of stock price determination has remained halted, slowly eroding the confidence of the same investors who might have heaved a sigh of relief when the floor price was imposed.
The chairman of the Bangladesh Securities and Exchange Commission (BSEC) repeatedly said the price restriction would not be lifted until the economy returned to a sort of normality.
That means he has been looking forward to a time when the pressure on the foreign exchange reserves would ease, inflation would calm down, and a favourable business environment would prevail. Such a scenario is not yet on the horizon.
As time stretches on, investors will get impatient with the market. New companies will also not be willing to get listed unless they have an ill motive. The market has been a witness to many incidents when company owners siphoned off money raised through an initial public offering and fled the country.  
Against this backdrop, whenever investors will get the opportunity to leave the market they will.
They have already shown reluctance to inject fresh funds into listed securities. They do not have any tool to help them decide if a stock is cheap or expensive at the floor price even after the company has revealed a remarkable profit growth. This is because the stock has had no momentum for months. When you look at a graph, what you see is a straight line (in most cases). No ups and downs. The stock has hardly shown any sign of existence. It is now like a human being with no heartbeats.
Many of the investors wanting to dispose of holdings at floor price in the event of a financial crisis are finding no buyers these days. On the other hand, some buyers, who expect to make gains in the immediate future, might find the present moment an opportune one.
Hence, the driving forces of the market -- demand and supply -- have largely been replaced by a mix of despair, shock, and fading hopes.
The dimming hopes will be finally extinguished if the present situation continues for long.
The mutual fund industry can be a good example here. Policies once thought to be in favour of fund managers eventually have gone against them. Investors have turned away from MFs though some mutual funds are earning well and give good returns. Now, we see most MFs trade at lower than the face value and their assets are much higher than the market value.
We learn a good lesson here; it is hard to repair a tainted image.

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