Stock market needs big players for healthy growth, not bull run
FE REPORT | Sunday, 17 January 2021
Country's stock market does need the listing big companies with strong fundamentals to help deepen and widen its base and reduce speculation-based trading, speakers told a webinar on Saturday.
They also suggested bringing good state-owned enterprises (SoEs) and other derivatives like mutual funds, bonds and securitisation of large infrastructure projects in this regard.
"We need to take more proactive steps to deepen the capital market," commerce minister Tipu Munshi told the virtual discussion, stressing the need for containing malpractices and providing clear market analysis to reduce speculative trading.
He expressed his disappointment over the absence of many big in the capital market and suggested listing the large companies to help reduce speculation and volatility.
Innovation & Development Associates (IDEA) organised the webinar titled "Capital Market in Bangladesh: Way forward in long-term financing", moderated by former executive chairman of the Bangladesh Investment Development Authority (BIDA) Kazi M Aminul Islam.
Taking part in the discussion, speakers also laid emphasis on strengthening regulations as well as boosting professionalism in the management of mutual funds.
Executive director of the Policy Research Institute (PRI) Ahsan H. Mansur said the characteristics of the country's capital market included insufficient due diligence, poor quality valuation of securities and low market capitalisation.
"We want sustained growth of the market, not any bull run. Accounts and audit system must be improved while the financial reporting council (FRC) must take a strong role," he said.
He also noted that the investors are unable to purchase good stocks at fair value in this market.
"Volatility of small companies is still going on," he said, adding that the share prices of listed insurers continued to rise without any specific reason.
"The regulator is forcing the companies to declare dividend. Investors of many renowned companies in the world also do expect dividend," he said.
Md Ashadul Islam, a senior secretary at the financial institutions division (FID), suggested removing policy barriers to the implementation of the market-friendly decisions.
He pointed out the presence of a lesser number of professionals in the capital market compared to that in the money market. "We need professionals in the capital market along with effective move to contain insider trading and market manipulations," he added.
Chairman of the Bangladesh Securities and Exchange Commission (BSEC) Prof Shibli Rubayat Ul Islam said the commission was working on addressing the missing links of the capital market.
"Long-term financing is not the job of the banks. It creates mismanagement when the borrowers fail to pay instalments due to various reasons, including the closure of business," he said.
He said that the regulator needed to provide good governance to bring good companies in the market. "We will get more good companies if the governance is improved. We are also trying to contain window-dressed balance sheets."
The chairman also stressed the need for playing a due role by the independent directors in the companies' boards.
"We are in a great fix as we see some people come to the market with an intention of vanishing with the investors' money. But we are taking criminal actions against them," he said.
He also suggested securitisation of the proposed second Padma Bridge to mobilise fund for its construction and said he had talks with a minister in this regard.
In his keynote speech, the former commissioner of the securities regulator Arif Khan said the units of mutual funds (MFs), shares of state-owned enterprises, and bonds are very insignificant in the local capital market compared other frontier markets.
"As a result, the market capitalisation to GDP ratio still remains low compared to other countries," said Mr Khan, also the managing director and CEO of IDLC Finance Ltd.
Apart from listing good local and multinational companies, including Unilever, a massive listing of perpetual bonds should be ensured to deepen the market and reduce investment risks, he said.
"Audit standards must be increased to restore investors' trust in financials which are cooked off and on. Insider trading regulation is weak and it must be made stronger," he added.
He pointed out that some 70-80 per cent of the trading in the capital market is based on speculation. "This practice must be changed."
He suggested the government to issue bonds against new projects like Bangabandhu Bridge which would generate cash flow.
President of the Bangladesh Association of Publicly Listed Companies (BAPLC) Azam J Chowdhury said the primary criteria of the companies willing to be listed should be their profit-earning capacity.