Market turnaround amid a crisis of confidence

Market turnaround amid  a crisis of confidence

Quite a few people in the country's capital market regulatory body and beyond were basking in false glory when the Dhaka Stock Exchange (DSE) main index soared to an all-time high of 7,368 points in October last year. The regulator had to introduce the 'floor price' mechanism in the middle part of the current year to prevent the market from collapsing.

Stock prices were on the upswing when the country's economy was battling to stay afloat amidst an unprecedented pandemic onslaught. The development had surprised many. But there was no reason to be surprised. The Bangladesh market has hardly ever behaved rationally. 

The regulator, it seems, is now groping in darkness to find ways to buoy up a market that has always lacked one important factor--- confidence of genuine and long-term investors.

A market needs the presence of both big and small investors. Institutional investors are big investors since they have a larger investable surplus in their possession. The involvement of big investors is a must for a stock market to thrive. The Bangladesh stock market is reportedly running short of this type of investors. 

Mr Salman F Rahman, private industry and investment adviser to the Prime Minister speaking at a seminar, organised by the Bangladesh Association of Publicly Listed Companies Wednesday in Dhaka, lamented the absence of big institutional investors in the Bangladesh stock market that, according to him, is dominated by retail investors.

Even though both small and big investors make what a stock market is, the biggies, however, play a bigger role as far as its proper growth is concerned. The fact remains that both types of investors would come to the market only when there is a prospect of making sizeable gains from their investment. Such gains, however, come in the form of dividends or appreciation of capital. Investors here prefer the latter and that too almost overnight. And that is the area where the problem lies. Some unscrupulous elements, better known as manipulators, are out to take advantage of this greed factor. Here also, there are big and small manipulators. When two groups join hands, the market witnesses a major upswing. Their ploy becomes successful if the capital market regulator, deliberately or otherwise, overlooks the developments.

The Bangladesh stock market has witnessed two major and a few minor collapses, mainly because of an unholy alliance between the two groups. The big manipulators usually operate behind the scene. Despite their involvement in these crashes, some big manipulators have been left untouched.

So, the crisis of confidence is seen as a major barrier to the stability and sustained growth of the country's capital market. This factor comes into play when big or small investors make investment decisions. Besides, the return on investment is another issue that largely influences investment decisions. At the moment, the rate of return in the form of dividends or capital gain remains unattractive. In Bangladesh conditions, banks and financial institutions are large institutional investors. Most of them have been experiencing problems with their liquidity. They have little surplus funds to invest in equities.

Thus, most likely the market will continue to limp for some more time, much to the frustration of people longing for an immediate turnaround.


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