Having passed yet another gloomy year, the country’s stock investors welcome the New Year today with a bleak prospect of turnaround amid political volatility.
According to the experts, the two bourses, which are still suffering fallout of the 2010 market collapse, will now largely depend on political stability.
The investors affected by the market debacle continue to feel the pinch with the ongoing deadly political battle over the national polls adding to their woes.
Analysts believe investors would keenly follow the political developments in 2014. This factor will remain a major market mover in the year, they said.
Looking back
An analysis of Dhaka Stock Exchange turnover data shows that the volumes still hover around Tk1,000 crore.
Before the bubble year of 2010, the turnover in 2009 was Tk1,475 crore and in 2008 it was Tk667 crore.
Exceptionally, the 2010 turnover reached an astounding amount of Tk4,009 crore, and then fell sharply, but not to the levels of before 2009.
In the just concluded year, the benchmark index DSEX gained marginally 4% and it was the best gain since 2010. The intra year volatility was 1000 points.
Strikingly, the volume of trade fell 6% and daily average turnover was down 5% to Tk400 crore.
“The boat (of stocks) kept tipping to one side and the other in 2013,” said Faruq Ahmed Siddiqui, former chairman of Bangladesh Securities and Exchange Commission. “It was an extremely volatile year for the country’s bourses,”
Different efforts were taken to shore up the market artificially, Faruq Ahmed reminisced, adding “I however think the market looked somewhat stable at the end of the year.”
According to him, the low cap companies’ behavior was abnormal during the year. “The bottom line is that the low cap companies didn’t act normally.”
“So it is clearly understood that manipulators were very active in the market while the regulator simply looked helpless.”
The Lanka Bangla Securities said stocks of the low cap companies closed more than 29% higher but the large cap companies liked banks that dropped over 11% due to consistent volatility throughout the year.
He however didn’t think the political turmoil was the only major factor causing market fall.
Siddiqui said: “If you take a look at the past history of the market reaction to the political situation like in 2006, the market was unperturbed. I cannot say the present political turmoil is also affecting the market significantly.”
“But, then, in these days, the declining turnover, which was probably caused by the political destabilisation, is the reflection of eroding confidence on the market.”
Former finance adviser to last caretaker government Mirza Azizul Islam said: “Firstly, the market has undoubtedly been undervalued if the current price-earning-ratio is taken into account.
It means that the investors are to regain since the 2010 market crash.”
In 2013, price-earning-ratio stood at 15, according to the Dhaka Stock Exchange.
“Investors are yet to heal the wounds of that crash, which reflects in the lower turnovers and flat growth of indices,” said the ex-adviser.
Secondly, he continued, those who suffered losses were promised to be given compensation and other stimulus package, but are yet to be implemented.
He said thirdly the political turmoil has been aggravated now, creating a mess.
Amid negative business climate, people cannot expect reasonable dividends because many enterprises will probably make losses, he said, adding that it is one of the reasons that investors found not enough interest to bet on stocks. “So, it was certainly a disappointing year.”
Looking back at the past 12 months, there wasn’t a big event that investors could cling to, said Yawer Sayeed, a leading fund manager.
“Only big event was the implementation of demutulisation of stock exchanges but it has no relation with the price movement.”
“Instead, it was a rally or slump and junk stocks that gained momentum. The market failed to overcome the shock of the debacle,” said Yawer Sayeed.
Investors were, however, increasingly worried over the tense political situation. It could take away steam out of the market further, signs of which are already visible in the falling volumes, according to the analysts.
Looking ahead
The investors see no glimmer of hope in the year which just has begun as the political turmoil lingers with apparently no possibility of tranquility very soon.
Bangladesh Bank estimated the gross domestic product is likely to grow at the rate between 5.7% and 6%, much lower than the budgetary projection of 7.2% for the current fiscal.
Earlier, International Monetary Fund also lowered growth forecast at 5.5% and the World Bank at 5.7%.
“If political turmoil continues, confidence will be dented further,” said Faruq Ahmed Siddiqui, adding that “the situation will lead to generate another disastrous year for everything including the stocks.”
He put emphasis on the immediate solution to the current political crisis for the benefit of the market and the whole economy.
The economic slowdown means no new investment, which might have an adverse impact on the initial public offering market, Faruq Ahmed observed.
Mirza Azizul Islam, a former BSEC chairman also, echoed Siddiqui, saying the prospect of 2014 depends to a great extent on how soon the political crisis is resolved.
“Everybody is waiting to invest after political stability returns.”
Other factors to help the market revive include implementation of incentive packages, effective behavior of the regulator and the board for demutulised stock exchanges, regeneration of confidence among investors through monitoring and taking punitive actions against errant companies and manipulators.
Over the year, BSEC has made some changes to its regulatory framework and taken actions, which are yet to bring results in the market, said Mirza Aziz.
The commissions ratified some new rules and modified some, including book-building, private placement of debt securities, mutual funds and corporate governance.
Former finance adviser said the lowering of GDP growth forecast and the slow-down of capital machinery import do no bode well for the entire economy including the bourses.
