Abu Taher Bappa

2020-01-16 23:23:33 BdST

Moves to arrest market slide


Against a backdrop of panic selling and extreme worry in the stock market, the finance ministry, the central bank and the securities regulator have apparently come up with a strategy to arrest the slide.

Following an extreme 9.4 percent fall over the first ten working days of the current year, the broad-based index of Dhaka Stock Exchange had a negligible 0.79 percent rise on Wednesday.

It is mainly an outcome of government attempts to let as many institutions increase buy orders in the stock market.

At the same time, for a sustainable recovery, the market needs concrete measures in terms of both revival of investors' confidence and an increased fund flow, according to market participants.

This is because empty hope-driven and ordered rallies were not sustainable in recent years, they said.

DSEX, the core index at the premier bourse, began the day on a bullish note. Increased buy orders helped the index rise by over 80 points or two percent in the first hour of the trading session.

The finance ministry verbally ordered the state-owned banks to invest in stocks as they are cheaper now.

Sources at different brokerage firms confirmed that some banks had done accordingly, leading to a positive impact on prices.

Additionally, the Bangladesh Bank said on Tuesday that it was working on proposals on the stock market with the intention of zeroing in on the best of them.

Market-related people believe the long-term soft loan of Tk10,000 crore that was sought for market intermediaries would be the best option at present.

The positive attitude of the central bank has also helped increase a sense of optimism about market direction.

But with confidence among a wide range of investors yet to be revived, the intra-day hike on Wednesday was not sustained at the top. The indices were in a correction phase for the rest of the day, to close the session with a lesser gain – 31 points or a 0.79 percent rise for the DSEX.

A number of investors were looking for opportunities to utilize the hike in freeing themselves of some of their holdings. An intra-day fall in Grameenphone shares also affected the indices, said floor traders.

Panic selling has to be stopped first. This was the view at an emergency meeting at the Bangladesh Securities and Exchange Commission (BSEC) in the capital's Agargaon, where stakeholders discussed their prevailing problems with the securities regulator and proposed some steps toward reviving market confidence.

BSEC meeting with stakeholders

As part of simultaneous moves for the stock market, the BSEC on Wednesday morning sat in emergency meeting with leaders of DSE Brokers Association (DBA), Bangladesh Merchant Bankers Association (BMBA) and representatives of top brokerage firms.

The meeting, presided over by BSEC Commissioner Dr Swapan Kumar Bala, mainly discussed the possible ways and means of reviving market confidence and liquidity.

"Stakeholders shared their views and information with the commission and also tabled some suggestions to overcome such an unwarranted situation in the market," said BMBA Secretary Md Riyad Matin.

The proposals included immediate steps that should be implemented in the short term. Some long-term steps were also suggested.

Sources said that the main subject at the meeting was the panic sell-off, prompting detailed discussions on how to stop the haemorrhaging.

"Foreign portfolio investors' sell-off is not too significant for our market if market confidence is revived. Foreigners are also believed to be coming back with buy orders as a number of stocks are already undervalued,"said Mohammad Ali, a director of the DBA.

He, along with some other participants, proposed raising the regulatory limit on family stakes in banks, non-banking financial institutions and insurance companies from the existing 10 percent to 20 percent.

Some entrepreneur families are looking to increasing their stakes in these entities. At the meeting they noted that at a time when the capital market was looking for increased buy orders from sponsors and directors, the measures proposed would help the market.

The recent bill to transfer the surplus cash of government entities to the national exchequer has heightened investors' worries as a number of listed state-owned enterprises have been posting high earnings from their FDR income.

The capital market stakeholders demanded an exemption for the listed companies in this case as the cash pile there is owned by general shareholders as well.

BSEC officials assured them of advocating the point at the next meeting of the finance ministry committee on capital market on January 20.

The government's effort to cap bank interest rates also worries investors in terms of banking sector profitability and pace of private sector loan disbursement.

The worry is widened in conjunction with the Tuesday bill placed before parliament as the private sector banks have been significantly counting on low-cost deposits from government entities.

If the source is closed for banks, interest rate capping will lose market viability, a stakeholder said.

Some of those at the meeting expressed their urge to see a more expansionary monetary policy and quantitative easing that should boost economic activities and exports, and help the financial market as well.

Buy back, a long-sought practice, is not being implemented because of the existing restrictions in the Companies Act and thus should be removed so that the BSEC can go ahead with it.

All over the world, companies with their surplus cash can buy back their own stocks and go for their dissolution. Besides, a reduction in the number of shares helps boost companies' earnings per share and stock prices as well.

"We can have many similar cases if the legal structure is prepared," said Md Moniruzzaman, a chartered financial analyst at IDLC Investments Limited.

The stakeholders also sought the BSEC's attention to strengthen the culture of transparency among listed companies in terms of communicating business plan details, explaining their performance and responding to investors' detailed queries.

Unhealthy practices in the secondary market, such as colluded dumping of overvalued stocks in public-owned investment accounts and manipulation of weak companies' share prices, must be stopped, they said.

And, the BSEC should be more active, effective and prompt in detecting and punishing securities market criminals as they hurt honest investors' confidence, suggested the market practitioners.

Stakeholders at the meeting suggested inspiring more institutional channels of investment in the stock market, welcoming investors with their money in the market, strengthening market development steps with diversified products and technology-driven market infrastructures, and, above all, working toward an improved primary market for a better capital market in the long run.

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