Bourses warn of 'disaster'

Star (October 10, 2010)

Dhaka and Chittagong bourses yesterday warned of a disaster in the stockmarket, and sought the prime minister's intervention in offloading government shares as a short-term step to cool down the market.

Unless the market calms down

immediately, it may face a big disaster any time and the exchange authorities will not take the responsibility, they said.

They said a dearth of new shares is the main reason for the current bullish trend, as the demand for shares is on the rise, and the supply cannot match the huge demand.

The stockmarket is at its peak now. On Thursday the benchmark index of the prime bourse reached its highest level at 7,480 points. The single-day turnover also hit record Tk 2,801 crore.

"We seek the prime minister's intervention to avert any disaster," said Md Shakil Rizvi, president of the premier bourse, while addressing a press conference jointly organised by Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE).

"Keeping the majority or 51 percent holdings in its hand, the government should offload its stakes in the companies already-listed on the exchanges. Share offloading in the already-listed companies will not take much time, as it's a matter of decision only," he said.

Presently, 25 percent shares of Desco are publicly tradable, Powergrid's 23.75 percent, Titas Gas's 25 percent, Jamuna Oil's 30 percent and Meghna Petroleum's 30 percent.

Rizvi said the market has been rising for the last 15 days without any correction in share prices, although there is no fundamental reason for the surge.

"We are not worried over the rising index, but over the abnormal rise in the price-earnings (PE) ratio," he said.

A PE ratio is a company's current share price compared to its earnings per share. In general, a high PE ratio reflects that the investors are expecting higher earnings or that there is a strong chance that they will be able to make a capital gain.

"There are many companies that have no growth or profitability and they are not even paying dividends, but their share prices are rising everyday," the DSE president said.

"If the investors buy into the companies that are already overvalued, and if the market faces a disaster-like situation, the responsibility will be theirs [investors]," Rizvi said.

CSE President Fakhor Uddin Ali Ahmed said the market is so heated that they convened the press meet to aware the investors of the abnormal market.

He said though the government had decided to offload its stake in 26 state enterprises, these are yet to happen.

"If something bad happens, it will be the government's failure and it will have to take the responsibility," Ahmed said.

He also said: "Time has come to open professional consultancy for the investors so they are guided properly."

Currently, investment consultancy is prohibited in Bangladesh's stockmarket, although it is legitimate in most countries.