• Tuesday, Sep 25, 2018
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‘We need to focus on product diversification and good company listings’

  • Published at 10:49 pm September 8th, 2018
Md Toufique Hossain
Stock market analyst Md Toufique Hossain COURTESY

They also talked about Alternative Trading Board (ATB) rules

In an interview with the Dhaka Tribune’s Niaz Mahmud, stock market analyst and financial market columnist Md Toufique Hossain discusses the current state of Bangladesh’s capital market and ways to strengthen it.

How do you evaluate the current state of the capital market in Bangladesh?

Our stock market collapsed twice –once in 1996 and then againin 2010-11. The common factors werelack of good governance and weak infrastructure. Stock market crash is a common phenomenon around the globe.

At present, the share market is fairly well regulated and structured compared to the past.  In addition to bringing new indices, the market is now being operated on international platform ‘Demutualization’. China will work with the Bangladesh capital market as a strategic partner. 

We cannot take the stock market to the desired level despite such positive changes because of thelack of confidence among stakeholders as well as unhealthy competition. 

Stock prices have plunged in 2018 mainly because ofa mounting liquidity crisis in many banks, NBFIs (non-banking financial institute) and ADR (advance deposit ration) complexity alongside an unusual price increase of low-cap shares without any price sensitive information (PSI) and the fundamental basis of the securities.

There is also a lack of financial literacy in the country.

What are the prospects of foreign investment and what changes are you expecting in the market after the consortium of the Shenzhen Stock Exchange (SZSE) and Shanghai Stock Exchange (SSE) joined our capital market?

Undoubtedly, this ample support will help the stock market bounce back and regain investors’ confidence.  Stakeholders will get some technical support from the consortium. They include stock exchange infrastructure framework, service mechanism, pattern of trade, product diversification. 

It will help woo foreign investors, which, in turn, will help regain confidence of the small investors.

Which immediate steps can be taken to increase the stock market’s contribution to GDP?

Worldwide, the capital market is given the highest priority for long-term investment and expansion of the economy. For instance, in India, the capital market is given the maximum importance to meet-up $4.5 trillion worth of infrastructure investment.

Share market’s contribution to Bangladesh's economy is very inadequate. Bangladesh is on the verge of becoming a middle-income country and aims to become a developed nation by 2041. Therefore, the country's stock market must be linked to the mainstream economy. 

As a result of the strategic investor, a new investment platform will definitely emerge in the country. We need to focus on product diversification and good company listings. 

What should be the role of the merchant banks?

Merchants play a supporting role as a controlling party between bank issuers and investors. During the stock market collapse, we did not see the prudent role of merchant banks.

Time has come for merchant banks to focus on issue management and properly manage an investment portfolio instead of just focusing on lending activities.

The time has come for merchant banks to play a role at the policymaking level. New companies will come to the market to increase the market depth and in this case, the merchant bankers’role is unrestrained.

Do you think the market is mature enough for trading derivatives?

Bangladesh's stock market is now traded in an international format. That is why new instruments such as derivatives and commodity features must be introduced.

The derivative has its own strategies like a hedge, speculate or increase the leverage of any investor’s portfolio. At present, the market for the derivative is not ready. First, we have to ensure financial literacy of investors in order to have a good idea about this instrument.

What is your opinion of the Alternative Trading Board (ATB) rules?

The ATB is a timely initiative. It will undoubtedly ensure product diversification in the capital market and ensure more investor participation through the stock brokers alongside promoting unlisted and delisted securities in the capital market. 

Why are multinational and government companies not being listed?

One of the reasons why the stock market contribution to Bangladesh’s economy islow isbecause of the small presence of multinational and government companies. There are only 13 multinational companies (MNCs) and eight state-owned enterprises listed in the two stock exchanges. MNCs are not enlisting with the capital market because of regulatory obligations. 

To encourage MNCs and state-owned companies to join the stock exchange, the government and the regulator will have to take initiatives.

What can we do to strengthen our capital market?

We got China as a strategic partner as we have moved on to international platform demutualization. Successfully implementing the demutualization process is a big challenge. Demutualization will not change the market overnight. For the change, we need a concerted effort of the stakeholders and the policymakers. Another challenge is to bring back the investors’confidence.

The stock market is a risky venture. So, investors need a good understanding and good research before venturing into the market.The full implementation of the financial literacy program will strengthen our capital market and benefit the investors.

Bangladesh’s capital market will not see any more collapses. To bring dynamism of internal instruments, it is necessary to build a corporate bond market in the country and strengthen the mutual funds.