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Regulatory lapses cause stock prices to hit rock bottom

  • Published at 09:54 pm July 21st, 2019
Regulatory lapses cause stock prices to hit rock bottom

Committee formed to probe market debacle

Stock investors have kept losing their capital for long due mainly to lapses in regulatory and enforcement matters, say market operators 

They have also blamed new penalty tax imposed in the current budget, lack of confidence in securities regulator and recent gas price hike for the free fall of stock prices.

The latest trading suspension of Peoples Leasing and Financial Services Ltd coupled with the liquidity crisis in the banking sector has further dampened the stock business. 

Meanwhile, the securities regulator BSEC yesterday formed a four-member of inquiry committee headed by its director Rejaul Karim to investigate the role of intermediaries in current bearish market. 

The committee will also look into the unusual price movement of listed securities, BSEC spokesperson and executive director Saifur Rahman told Dhaka Tribune on the day.

He also said the inquiry committee was asked to submit a report within 15 working days.

Market operators say the investors are panicked as the market has been falling for the last three weeks, loosing around 299 points.

They also point out that the continued fall in turnover also indicates that the institutional investors are sitting on the fence, waiting for the share prices to come even lower.

The daily average turnover on DSE came down to Tk327.35 crore last week from Tk422.57 crore in the previous week.

Yesterday’s fall was a continuation of a lack of confidence of investors, they think.

The broad index of Dhaka Stock Exchange (DSE) lost 96.95 points yesterday, which was the biggest single-day index fall in more than 17 months since February 18, 2018. The DSEX lost 99.40 points on the day.

The big fall caused the DSEX index to fall to the lowest level in the last 30 months. 

At the end of the day, the index closed red at 5,033.75 points levels with 1.89% decrease from the previous day.  

Dhaka Stock Exchange Brokerage Association (DBA) President Shakil Rizvi has told Dhaka Tribune: “The banks do not have enough money. Despite repeated requests from top government officials, the interest rate of banks has not been lowered to single digit.”

“Another new problem added to the market crisis is gas price hike by the government. Investors are thinking that the profitability maybe negative for gas price rise, which has affected the stock market,” he adds.

Last Monday, the broad index of DSE shed 88.01 points or 1.70%, triggering demonstration by investors who took to the streets in the capital. The free fall of stock prices caused the broad index-DSEX of the prime bourse to drop to the lowest level in the last 30 months.

The market began to dip sharply since the beginning of 2019, losing about 750 points as of yesterday.

Observers say inefficiency of Bangladesh Securities and Exchange Commission (BSEC) top officials, including its chairman and members, has caused huge lack of confidence among investors. 

Because of their repeated extensions, small investors have been seeking their resignation, they add.

The Ministry of Finance, they allege, seems indifferent towards reconstructing the BSEC, and infuse vigour in the capital market.

“Capital market is integral part of the entire financial sector that has been faltering for long for lack of leadership and clear direction,” a senior official at a merchant bank has said.

“The government has got to fix the fiscal and financial governance, including the banking sector, as a priority for getting maximum output out of the reforms already undertaken to revive the capital market,” he adds.

Another observer says weak enforcement, particularly taking no actions against market curtail, and lack of efforts to bring institutional investors to floor are two major factors hampering the normal growth of stock business.

Stock stakeholders say the small investors, muddled by the continued falling trend in the market and haphazard environment in the financial market, have kept selling shares amid volatility at the market.

Former president of Bangladesh Merchant Bankers Association (BMBA), Mohammad A Hafiz has told Dhaka Tribune: “The investors are going through a volatile situation amid financial scams, soaring non-performing loans, and poor banking management that dampened their moods. Liquidity crisis in the country’s banks also made local and foreign investors wary of investing in Bangladesh’s capital market."

Declining profit of Grameenphone also impacted the market badly as its profits declined by 8% in April-June compared with the same period last year and the company declared 90% interim dividend which was lower than previous year, and less than the investors’ expectations, say market observers.

They have said many institutional investors are waiting to see what steps the market regulator will take for the capital market.

Secretary general of the Bangladesh Merchant Bankers Association (BMBA) Khairul Bashar Abu Taher Mohammed says that the investors are already grappling with several issues, such as imposition of extra tax on listed companies and the Grameenphone’s clash with the telecom regulator.

Recently a section of capital market investors demanded immediate intervention of Prime Minister Sheikh Hasina to stop the  continued fall. The demand was placed by Pujibazar Biniogkari Oikya Parishad (PBOP), a platform of capital market investors, to the Prime Minister's Office.

PBOP President Mizan-ur-Rashid Chowdhury has told Dhaka Tribune: "We have submitted a memorandum with a 15-point charter of demands to the prime minister in our last endeavours to survive by saving our investments. We hope that PM will consider a positive outlook to fulfil our demands." 

Blaming incumbent chairman of Securities and Exchange Commission for the failure to bring back normalcy to the market, the PBOP reiterated their demand for his resignation.