FE Report (January 12, 2011)
Dhaka stocks Tuesday rose more than 15 per cent - the highest one-day spike ever - rebounding a day after a record plunge sparked violent protests nationwide and prompted a flurry of market-boosters from the authorities
The benchmark Dhaka Stock Exchange general index (DGEN) gained 1,012.65 points, or 15.58 percent, to close at 7,512, but analysts warned the market could still face troubles as the bounce was led by government intervention.
The market slumped 7.76 per cent on Sunday while trading on Monday was suspended when the index dived a record 8.9 per cent within an hour, sending investors onto the streets in major cities and towns across the country.
"This is a government-led rebound driven by market-boosting measures from the Securities and Exchanges Commission (SEC) and the central bank," Mahmud Osman, professor of finance at Dhaka University, said.
"In the ultimate analysis it looks like an artificial spike - one that raises more questions than answers. And the vital question remains how much of these gains will be retained," he said.
The broader DSE All Shares Price Index (DSI) was sharply up by 829.24 points or 15.30 per cent to end at 6249.36, while the DSE 20 blue chip index rose by 656.51 points or 15.95 per cent to end at 4773.66.
Trading of 180 issues - or some 80 per cent of the shares -- hit the upper band of their respective circuit breakers, forcing automatic freeze on their transaction. And there were no sellers for most of the stocks.
On Monday riot police used tear gas to disperse investors protesting a record fall outside the stock exchange, where outraged crowd clashed with police and set alight tires and furniture and chanted slogans against the government and regulators.
The authorities - the SEC and the Bangladesh Bank -reacted with repealing or postponing some of their recent orders and easing margin loans facility for retail investors in a bid to boost liquidity and appease angry investors.
The SEC increased margin loan - the credit extended to investors to buy shares -- to 1:2 instead of the current 1: 1.5 and lifted restrictions on 14 companies being traded at the spot market.
The central bank also asked the commercial banks including the state-heavyweights Sonali, Janata and Agrani to buy shares so as to buttress the market against any new selling pressure.
And institutions were active right from the very first minute. Within five minutes the DGEN was up by 700 points, or 12 per cent, and it soared 1000 points in just about two hours time before flattening in late session.
"It looks like the central bank had a trade-off with the banks. The BB told the banks to buy heavily and in exchange it promised to turn a blind eye to diversion of their industrial credit to the stock market," said an analyst.
"I expected the market to rise today following panic sale in the last two days. While the past two days almost everybody became a seller. Today all have become buyers," said Monirul Kabir, a trader.
However, many small investors had to stay on the sideline as the market rose to a dizzying height. Some cash-rich investors wanted to buy stocks, but had to return empty-handed because of lack of sellers.
Retail investors demonstrated at different merchant banks and brokerage houses after the institutions failed to provide increased 1:2 margin loans in line with the SEC's directives.
Al Arafah Islami Bank and IDLC securities suspended trading for more than a hour due to the protests. The investors also demonstrated in front of Mercantile Bank.
"The institutional investors and many big investors bought shares Tuesday, which prodded some small investors to buy shares and pushed the market up," said Professor Abu Ahmed, who teaches Economics at Dhaka University.
But others warned that the rally does not portend well for the market's future. "It was unusual and abnormal behaviour. We did not expect it," said Akter H Sannamat, managing director of Prime Finance and Investment.
"The liquidity crisis is still persisting as many of merchant banks and brokerage houses could not implement the reset 1:2 margin loan and many lenders offices were attacked by investors," Mr. Sannamat said.
Turnover came down to 9.77 billion taka due to paucity of sellers. Gainers led strongly over the losers as out of 248 issues traded, 243 gained and only five declined.
Beximco Limited topped the turnover list with shares worth Tk 824.62 million changing hands. And AIBL First Mutual Fund was the highest gainer posting a rise of 77.66 per cent.
The day's only five losers were Jute spinning, Monno Jute Stafflers, Delta Life Insurance, First ICB and Chittagong Vegetable.
Meanwhile, most of the brokerages and merchant banks have said they could not meet the hunger for margin loans the investors sought to adjust their portfolio, following two days heavy losses days.
"Providing margin loan at the new ratio has become difficult as most institutions faced acute fund crisis. Although the BB fixed interest rate cap at 20 per cent in the call market, the money market remains volatile" said a top merchant banker.
"If you don't have money in your own pocket, how can you lend money to others?" he said.
Record spike worries SEC
Instead of celebrating the rebound, officials of the SEC expressed their concern over the reckless behavior of the stock market after the DGEN recorded a new one-day spike.
"We wanted to see the market behave normally. But we have never expected the DGEN will go up by 1012 points. It's too much beyond our expectation as it does bear positive sign," said an official.
In such a situation, the official has advised the retail investors to be prudent in their transaction. "We are worried that this sort of unusual hike could ultimately hurt investors," he said.
Dhaka stocks Tuesday rose more than 15 per cent - the highest one-day spike ever - rebounding a day after a record plunge sparked violent protests nationwide and prompted a flurry of market-boosters from the authorities
The benchmark Dhaka Stock Exchange general index (DGEN) gained 1,012.65 points, or 15.58 percent, to close at 7,512, but analysts warned the market could still face troubles as the bounce was led by government intervention.
The market slumped 7.76 per cent on Sunday while trading on Monday was suspended when the index dived a record 8.9 per cent within an hour, sending investors onto the streets in major cities and towns across the country.
"This is a government-led rebound driven by market-boosting measures from the Securities and Exchanges Commission (SEC) and the central bank," Mahmud Osman, professor of finance at Dhaka University, said.
"In the ultimate analysis it looks like an artificial spike - one that raises more questions than answers. And the vital question remains how much of these gains will be retained," he said.
The broader DSE All Shares Price Index (DSI) was sharply up by 829.24 points or 15.30 per cent to end at 6249.36, while the DSE 20 blue chip index rose by 656.51 points or 15.95 per cent to end at 4773.66.
Trading of 180 issues - or some 80 per cent of the shares -- hit the upper band of their respective circuit breakers, forcing automatic freeze on their transaction. And there were no sellers for most of the stocks.
On Monday riot police used tear gas to disperse investors protesting a record fall outside the stock exchange, where outraged crowd clashed with police and set alight tires and furniture and chanted slogans against the government and regulators.
The authorities - the SEC and the Bangladesh Bank -reacted with repealing or postponing some of their recent orders and easing margin loans facility for retail investors in a bid to boost liquidity and appease angry investors.
The SEC increased margin loan - the credit extended to investors to buy shares -- to 1:2 instead of the current 1: 1.5 and lifted restrictions on 14 companies being traded at the spot market.
The central bank also asked the commercial banks including the state-heavyweights Sonali, Janata and Agrani to buy shares so as to buttress the market against any new selling pressure.
And institutions were active right from the very first minute. Within five minutes the DGEN was up by 700 points, or 12 per cent, and it soared 1000 points in just about two hours time before flattening in late session.
"It looks like the central bank had a trade-off with the banks. The BB told the banks to buy heavily and in exchange it promised to turn a blind eye to diversion of their industrial credit to the stock market," said an analyst.
"I expected the market to rise today following panic sale in the last two days. While the past two days almost everybody became a seller. Today all have become buyers," said Monirul Kabir, a trader.
However, many small investors had to stay on the sideline as the market rose to a dizzying height. Some cash-rich investors wanted to buy stocks, but had to return empty-handed because of lack of sellers.
Retail investors demonstrated at different merchant banks and brokerage houses after the institutions failed to provide increased 1:2 margin loans in line with the SEC's directives.
Al Arafah Islami Bank and IDLC securities suspended trading for more than a hour due to the protests. The investors also demonstrated in front of Mercantile Bank.
"The institutional investors and many big investors bought shares Tuesday, which prodded some small investors to buy shares and pushed the market up," said Professor Abu Ahmed, who teaches Economics at Dhaka University.
But others warned that the rally does not portend well for the market's future. "It was unusual and abnormal behaviour. We did not expect it," said Akter H Sannamat, managing director of Prime Finance and Investment.
"The liquidity crisis is still persisting as many of merchant banks and brokerage houses could not implement the reset 1:2 margin loan and many lenders offices were attacked by investors," Mr. Sannamat said.
Turnover came down to 9.77 billion taka due to paucity of sellers. Gainers led strongly over the losers as out of 248 issues traded, 243 gained and only five declined.
Beximco Limited topped the turnover list with shares worth Tk 824.62 million changing hands. And AIBL First Mutual Fund was the highest gainer posting a rise of 77.66 per cent.
The day's only five losers were Jute spinning, Monno Jute Stafflers, Delta Life Insurance, First ICB and Chittagong Vegetable.
Meanwhile, most of the brokerages and merchant banks have said they could not meet the hunger for margin loans the investors sought to adjust their portfolio, following two days heavy losses days.
"Providing margin loan at the new ratio has become difficult as most institutions faced acute fund crisis. Although the BB fixed interest rate cap at 20 per cent in the call market, the money market remains volatile" said a top merchant banker.
"If you don't have money in your own pocket, how can you lend money to others?" he said.
Record spike worries SEC
Instead of celebrating the rebound, officials of the SEC expressed their concern over the reckless behavior of the stock market after the DGEN recorded a new one-day spike.
"We wanted to see the market behave normally. But we have never expected the DGEN will go up by 1012 points. It's too much beyond our expectation as it does bear positive sign," said an official.
In such a situation, the official has advised the retail investors to be prudent in their transaction. "We are worried that this sort of unusual hike could ultimately hurt investors," he said.
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