Some investors got their fingers burnt from the recent plummeting of stock prices of the most newly listed companies that began trading more than 20 months back.
The share prices of most companies rose unusually in their first few trading days, but witnessed a free fall in the following days — a trend started since the regulator allowed share credit against the newly listed companies in November 2012.
Around 26 companies, mostly small-cap ones, made debuts after reintroduction of the new margin rules at the Dhaka Stock Exchange (DSE).
Of those, half of the companies’ shares lost more than 100% and the rest declined around or below 50%, according to the DSE data.
Analysts say as these companies are mostly small caps, they can easily manipulate their business in the stock and small investors bear the brunt of it as they bought share prices availing margin loan.
These stocks are underperforming by a wide margin while the investors are increasingly risk averse, they said.
According to the traders, the decision of regulators created opportunities for manipulators to fleece investors who are often blamed for their ignorance about the market, and whim.
Generation Next Fashions was the first company that came under the new margin facilities. Its share prices dropped as low as Tk14 a share, a sharpest fall of 202% from its debut price level.
Shruwid is the latest and glaring example of such case. Its share prices rose 382% to Tk53 in debut day, down 12% from its latest price.
Fareast Knitting and Dyeing Industries Ltd made a debut just before Shruwid. Its share prices fell 16% after skyrocketing in the first trading days.
“These were speculative drive rally but not fundamental,” said VIPB Asset Management Company Chief Executive Officer Shahidul Islam.
He said the company insider who know better than anybody about the fundamental of his company fixed offer price at Tk10, but the outsiders bought it to Tk40 or above.“It does not make any sense.”
Such behaviour was also seen in the companies including Golden Harvest Agro Industries, Premier Cement Mills, Global Heavy Chemicals, Argon Denims, Sunlife Insurance Company and Envoy Textiles.
“My money evaporates …,” said Akter Mohammad, a retailer who put money on Generation Next Fashions. “Its initial rising prices attracted many but at the end of the day, we lost everything,” he said.
Despite earning per share and net asset value per share of the newly listed companies compared with those of other companies of the same sector, the investors were buying shares of the new scrips at higher prices.
Former Bangladesh Securities and Exchange Commission chairman Faruk Ahmed Siddiqi said: “In some cases, ironically in our stock market, price does not increase in line with the fundamentals.”
“Small investors without minimum knowledge fall prey to manipulators,” he said, adding that the investors were squarely responsible for this.
Why did they buy for such a high price? he posed a question.
However, the regulators should observe whether or not any unusual trading occurs, said Siddiqi.
The market operators said some big investors even institutions jacked up the share prices of a particular company by committing series trading from different brokerage firms to woo small investors.
Bangladesh Merchant Bankers Association Vice-President Akter H Sannamat said any lender should not provide loan against any company with weak fundamentals.
On November 28, 2012, the Securities and Exchange Commission lifted margin loan cap on new shares and shares that changed category in a bid to bring dynamism in the ailing market at the cost of small investor money.
A BSEC official said the commission took the decision not to intervene into the margin loan distribution system.
The margin loan is a process that depends on mutual relationship between lender and borrower.
The commission only set a maximum ceiling, but the rest of the responsibilities go to who are dealing with it, he said.
