FE Report (January 27, 2011)
The developments in the stock market in the last two days' of trading, following the resumption of transactions last Tuesday, would suggest that prices are slowly bouncing back.
However, the status quo ante -- the level before the crash of stock prices late last week -- is yet to return.
If the buying side with institutional investors being the key players there at this stage, remains relatively strong in the coming days under a normal market situation -- and not under any other reason at anyone else's directive or prodding -- further recovery of prices can, perhaps, be expected.
On their part, the sellers, mostly retail investors at this phase to be exact, in the market are still on a waiting game, in the hope that the market would move further upward and they would then be in a better position to recoup their earlier losses or even to make some gains. This will otherwise be considered a kind of 'wisdom' on their part, given the circumstances of market developments in the Bangladesh context where 'records' were seen to be set in a unique way in the recent times.
There is undeniably some 'artifice' in the market where 'tradability' of stocks is now limited by circuit breaker being in force at a limit lower than that earlier on price movements of individual scrips. The turnover of trade, in terms of both aggregate volume and value, during the last two days would bear this out. During the earlier bull-run, daily turnover was robust, prompting many pundits to raise questions about its magic.
The Index Circuit Breaker, an unusual practice with other comparable stock exchanges, was earlier enforced by the country's capital market regulator, Securities Exchange Commission (SEC), to help avoid a crash. That did not finally work and the market crashed last week, much to the chagrin of the retail investors. Far from the much-desired soft landing of the market, there was a plunge of stock prices in a matter of just two days, defying the Index Circuit Breaker.
Now after resumption of trading in the stock exchanges, the Index Circuit Breaker is gone but the issue-specific one is in operation at a lowered level than before. That has so far served the goal of avoiding any bumpy ride.
There is, thus, now a modest rise in stock prices. And the fall in such prices, if the same happens again -- the possibility of which can in no way ruled out involving a sizeable number of issues -- will also be a soft one.
It is difficult to predict how the market will behave in the coming days, considering the fact that it was too 'overheated' before, amid all kinds of allegations about manipulations and malpractices by aggrieved investors against some 'powerful quarters' who had played, what can be likened to, Hamelin's pied piper flute.
In the post-debacle stock market situation, some quarters did reportedly make utmost efforts at various levels to involve the country's banking system in a bail-out programme, in the name of providing 'liquidity', in a liberal way to the capital market. That pressure did not largely work, thanks to the 'wisdom' of those who are involved in monetary management.
Given the inflationary situation at home and abroad and the state of affairs in the country's banking sector, such a bail-out operation, had it been opted for, would have created greater problems for the overall economy and its real sectors. Banks' deal with depositors' money and are not meant for making investments, beyond the permissible limit, in stock market.
So far so good. There has, of course, been a liquidity problem in the capital market for some time in the recent days. And that problem is not the creation of banks, notwithstanding the fact that normally the financial institutions do go for profit-taking out of their investments outside core banking areas -- of course, to the extent of their permissible limit -- around December at the time of their annual closure of accounts.
The major question that needs now a serious consideration by all concerned is how the stock prices in general, irrespective of fundamentals, did continue to set records during the bull-run and where the 'money' had gone following the record fall of the Index.
Some very responsible persons in the government are on record to have said most of the 'money', made during the bull-run, are in the capital market and this can be traced through beneficiary owner (BO) accounts with the central depository, a computerised network, for keeping records of share holdings of investors, institutional or retailers, including those who are perceived, on real or imaginary grounds, to have played 'Hamelin's pied piper flute'.
This view has, however, been partly contested by the incumbent president of the Dhaka Stock Exchange (DSE) who told the media last Tuesday that all 'money', earlier invested in and taken away from capital market, 'cannot be traced' in the Central Depository Bangladesh Limited (CDBL).
That raises the question whether any foul game was played in the market. This 'foul-game', as the allegations go, centered around the so-called book-building method, direct listing, approval of premium on issues, pre-placement of shares etc. And there are also allegations -- no body knows for certain whether they are real or not -- that there was an 'informal market' in operation for transactions of shares under direct listing and book building methods for floatation of public issues, even before the formal approval of prices by the regulator. Some powerful business houses and individuals were, allegedly, involved in such irregularities.
Those transactions are not reflected in the central depository. To trace out such transactions, bank accounts of the alleged 'players' or their proxies, not the central depository, will be relevant to gauge the extent of manipulation in the market, if there was any. But those 'inflated' prices fixed through bidding in the case of book building and also with direct listings, lured the investors to buy the same even at higher prices with the hope of making market gains.
Furthermore, there are allegations about 'doctored' accounts of some of the companies who had preferred direct listings or book-building for public floatation to inflate their share prices. A number of such companies who had earlier been making nominal profits or incurring losses, did reportedly show hefty profits in their financial statements at the time of public floatation of their issues through such methods.
Not that book-building or direct listing or the practice of issuing shares at a premium is fault here. Rather, the abuse of the same and the scope for it, that are issues of consequence here.
Now that a probe committee has been formed, headed by Mr. Ibrahim Khaled, a man of integrity and probity, and composed of Mr. Abdul Bari, former president of Institute of Chartered Accountants, Bangladesh (ICAB), and Prof. Toufic Ahmed Chowdhury, Director General, Bangladesh Institute of Bank Management (BIBM) as members, all concerned would expect that it would look into all-related developments in the capital market in past few years.
But the basic question remains whether the probe committee will have the remit to investigate into all the afore-noted allegations. If its terms of reference cover this, that will be welcome. And its findings will then help unearth the secrets of the 'bubble' or dispel misgivings.
However, the status quo ante -- the level before the crash of stock prices late last week -- is yet to return.
If the buying side with institutional investors being the key players there at this stage, remains relatively strong in the coming days under a normal market situation -- and not under any other reason at anyone else's directive or prodding -- further recovery of prices can, perhaps, be expected.
On their part, the sellers, mostly retail investors at this phase to be exact, in the market are still on a waiting game, in the hope that the market would move further upward and they would then be in a better position to recoup their earlier losses or even to make some gains. This will otherwise be considered a kind of 'wisdom' on their part, given the circumstances of market developments in the Bangladesh context where 'records' were seen to be set in a unique way in the recent times.
There is undeniably some 'artifice' in the market where 'tradability' of stocks is now limited by circuit breaker being in force at a limit lower than that earlier on price movements of individual scrips. The turnover of trade, in terms of both aggregate volume and value, during the last two days would bear this out. During the earlier bull-run, daily turnover was robust, prompting many pundits to raise questions about its magic.
The Index Circuit Breaker, an unusual practice with other comparable stock exchanges, was earlier enforced by the country's capital market regulator, Securities Exchange Commission (SEC), to help avoid a crash. That did not finally work and the market crashed last week, much to the chagrin of the retail investors. Far from the much-desired soft landing of the market, there was a plunge of stock prices in a matter of just two days, defying the Index Circuit Breaker.
Now after resumption of trading in the stock exchanges, the Index Circuit Breaker is gone but the issue-specific one is in operation at a lowered level than before. That has so far served the goal of avoiding any bumpy ride.
There is, thus, now a modest rise in stock prices. And the fall in such prices, if the same happens again -- the possibility of which can in no way ruled out involving a sizeable number of issues -- will also be a soft one.
It is difficult to predict how the market will behave in the coming days, considering the fact that it was too 'overheated' before, amid all kinds of allegations about manipulations and malpractices by aggrieved investors against some 'powerful quarters' who had played, what can be likened to, Hamelin's pied piper flute.
In the post-debacle stock market situation, some quarters did reportedly make utmost efforts at various levels to involve the country's banking system in a bail-out programme, in the name of providing 'liquidity', in a liberal way to the capital market. That pressure did not largely work, thanks to the 'wisdom' of those who are involved in monetary management.
Given the inflationary situation at home and abroad and the state of affairs in the country's banking sector, such a bail-out operation, had it been opted for, would have created greater problems for the overall economy and its real sectors. Banks' deal with depositors' money and are not meant for making investments, beyond the permissible limit, in stock market.
So far so good. There has, of course, been a liquidity problem in the capital market for some time in the recent days. And that problem is not the creation of banks, notwithstanding the fact that normally the financial institutions do go for profit-taking out of their investments outside core banking areas -- of course, to the extent of their permissible limit -- around December at the time of their annual closure of accounts.
The major question that needs now a serious consideration by all concerned is how the stock prices in general, irrespective of fundamentals, did continue to set records during the bull-run and where the 'money' had gone following the record fall of the Index.
Some very responsible persons in the government are on record to have said most of the 'money', made during the bull-run, are in the capital market and this can be traced through beneficiary owner (BO) accounts with the central depository, a computerised network, for keeping records of share holdings of investors, institutional or retailers, including those who are perceived, on real or imaginary grounds, to have played 'Hamelin's pied piper flute'.
This view has, however, been partly contested by the incumbent president of the Dhaka Stock Exchange (DSE) who told the media last Tuesday that all 'money', earlier invested in and taken away from capital market, 'cannot be traced' in the Central Depository Bangladesh Limited (CDBL).
That raises the question whether any foul game was played in the market. This 'foul-game', as the allegations go, centered around the so-called book-building method, direct listing, approval of premium on issues, pre-placement of shares etc. And there are also allegations -- no body knows for certain whether they are real or not -- that there was an 'informal market' in operation for transactions of shares under direct listing and book building methods for floatation of public issues, even before the formal approval of prices by the regulator. Some powerful business houses and individuals were, allegedly, involved in such irregularities.
Those transactions are not reflected in the central depository. To trace out such transactions, bank accounts of the alleged 'players' or their proxies, not the central depository, will be relevant to gauge the extent of manipulation in the market, if there was any. But those 'inflated' prices fixed through bidding in the case of book building and also with direct listings, lured the investors to buy the same even at higher prices with the hope of making market gains.
Furthermore, there are allegations about 'doctored' accounts of some of the companies who had preferred direct listings or book-building for public floatation to inflate their share prices. A number of such companies who had earlier been making nominal profits or incurring losses, did reportedly show hefty profits in their financial statements at the time of public floatation of their issues through such methods.
Not that book-building or direct listing or the practice of issuing shares at a premium is fault here. Rather, the abuse of the same and the scope for it, that are issues of consequence here.
Now that a probe committee has been formed, headed by Mr. Ibrahim Khaled, a man of integrity and probity, and composed of Mr. Abdul Bari, former president of Institute of Chartered Accountants, Bangladesh (ICAB), and Prof. Toufic Ahmed Chowdhury, Director General, Bangladesh Institute of Bank Management (BIBM) as members, all concerned would expect that it would look into all-related developments in the capital market in past few years.
But the basic question remains whether the probe committee will have the remit to investigate into all the afore-noted allegations. If its terms of reference cover this, that will be welcome. And its findings will then help unearth the secrets of the 'bubble' or dispel misgivings.
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