Speaking to Dhaka Tribune, market analysts and insiders attributed the yearlong drop in the stock market to confidence crisis
Bangladesh's stock market continued its nosedive posting a negative growth throughout 2019 while bourses in five other frontier and emerging Asian countries registered growth in the period.
The country’s prime bourse, Dhaka Stock Exchange, recorded negative index return, -17.3%, last year among the Asian countries, says a market valuation report released by City Bank Capital Limited on Wednesday.
During the same period, the return at Indian key index, SENSEX, was 14.7%. followed by 10.7% of Pakistani KSE100, 8.1% of Vietnamese VNINDEX, 1.0% of Thai SET and 2.3% of Sir Lankan CSEALL, as per the report.
Speaking to Dhaka Tribune, market analysts and insiders attributed the yearlong drop in the stock market to confidence crisis.
Liquidity crunch, money market volatility, rising non-performing loan and interest rates, poor tax revenue collection and heavy government bank borrowing added further concerns to the waning investors’ confidence.
Meanwhile, in 2019 the Dhaka bourse saw the second lowest price-to-earnings (P/E) ratios. The ratio of shares on DSE stood at 12.4 at the end of last year.
The PE ratio means a valuation ratio of a company’s current share price compared with its earnings per share.
The year started with shining streak amidst post-election buoyancy which caused benchmark index of DSE, DSEX to reach as high as 5,950 points within first 18 trading days of January 2019, a sharp rise of 10.48%. This hike failed to keep the momentum and by the end of December DSEX closed at 4,453 points or 17.3% fall year-on-year.
Why the vulnerability in country’s stock market
The country’s stock investors had to tolerate a painful year in 2019. Market key index, DSEX, witnessed seven-year record correction of 17.3% or 932.7 points against negative return of 13.8% in 2018.
Market sentiment observed bearish on few factors like spike of interest rate, liquidity crisis, aggressive bank borrowing by govt, Taka depreciation against USD, declining outstanding foreign portfolio investment, sluggish earning growth and poor payout ratio of listed companies.
Tussle between Grameenphone and the government, and post-dividend free-fall price adjustment of Square Pharma continued to hurt the market.
Meanwhile, a drastic fall in the price of large cap stocks namely Square Pharma, United Power and BATBC contributed to the market remaining on the decline in the outgoing year.
Dhaka Stock Exchange Brokers' Association (DBA) President Shakil Rizvi told Dhaka Tribune that the investors were grappling with the prolonged bearish trend, liquidity crisis in the country’s financial sector specially leasing firms, and Grameenphone’s tussle with the telecom regulator BTRC.
Analysts and market insiders also pointed out lack of good companies in the market as the primary reason behind the falling market index. Another major reason cited by them is investors' confidence crisis.
To attract good companies, experts suggest simplification of the process of listing and bringing government and multinational companies to the market to become examples for others.
Former adviser to a caretaker government AB Mirza Azizul Islam told Dhaka Tribune: “The stock market is a great source of funds, but its true potential is still untapped”.
“To attract entrepreneurs, the government has to set an example by offloading shares of state-owned companies [to the stock market],” he said.
Expectation in news year.
The finance ministry and the regulators are also working for the market development and may approve a special fund for stabilization of the capital market, say stakeholders.
Stock market regulator BSEC reconstitution and appointment of new managing directors for stock exchanges will continue the market development initiatives.
They also say introduction of new Index CNI-DSE Select Index (CDSET) from the beginning of 2020 for increased Chinese investments is expected to increase investors’ confidence and bring back soundness in the capital market.
Shakil Rizvi said: “Though the stock market started on a positive note in January, it closed the year shattering investors' confidence. So, restoring investor's confidence will be a great challenge for the new year to overcome the crisis.”
"It is also very crucial for the market to bring the foreign and institutional investors back in the floor and give them assurance of market stability in the coming year," added Shakil.