A market dominated by ‘fatkabaj’ investors and manipulators?

Express (August 09, 2011)

Crash, wild protests by aggrieved investors and then a lull for a prolonged period should have been the sequence of events at the country's bourses after the recent share scam.

But unlike the events following 1996 stock bubble bust, country's stock market this time is rife with lots of sound and fury. Another striking dissimilarity in the two post-collapse markets exists in market behaviour.

The market after the crash of 1996 continued to be dull and drab for a long period with most investors deserting it. This time there were occasional signs of a turnaround in the post-crash days. But market insiders suspect the push to be artificial. That is why the surge that is witnessed occasionally can not be sustained beyond three to four consecutive days.

The suspicion of market insiders, however, seems to be not without a basis. The rise in stock prices on the day following street protests by the so-called investors is indicative of foul play by an organized group or groups.

If the market reacts negatively to certain developments relevant to its interests, street protests, no matter whoever stages it, can no way set things right overnight.

But this has been a set behaviour pattern of the Dhaka stock market for months after months. However, when the market collapsed in December last, street protests could not be of any help for it was not possible on the part of the manipulators or some other groups to resist the very strong downward pressure and stabilize the market.

The market saw erosion -- some people described it as 'price correction'-- in stock prices for some days in a row last week. When the trading began last Sunday and stock prices started plunging, a section of 'investors' came out from the brokerage houses on the streets protesting. They blocked the main street of the business district of Motijheel chanting slogans of all types, including the pet one -- demand for resignation of the finance minister and the governor of the central bank.

The reasons explained by market 'pundits' for fall in stock prices last week, among others, included 'upcoming political unrest', 'bleak global economic prospects' and ' profit-taking'. These are the reasons that cannot be wished way overnight.

Bangladesh stock market, to be honest, has nothing to do with political and economic developments, both at home and abroad. It has its own style of behaving. And there are genuine reasons to believe that some people, powerful both inside and outside the bourses, are still fixing the behaviour pattern of the bourses.

One may not like the Finance Minister AMA Muhith's statement issued last Sunday describing the investors, who took part in demonstration against fall in stock prices, as fatkabajs (speculators), but one would subscribe to his observation that certain quarters (manipulators) are still at work in the country's bourses and are calling the shot.

The word, 'fatkabaj', used by the finance minister may sound objectionable to some because of its colloquial meaning in Bangla language. But the word, in fact, refers to investors who make speculative investments. In this context, most stock investors in Bangladesh, being uninterested in long-term investment, are 'fatkabaj'. Muhith was also right in saying that long-term investors, who put their hard-earned money in stocks of companies having strong fundamentals, do never take part in street protests.

In fact, the existing share prices are highly imbalanced. A good number of stocks are still maintaining unreasonably very high prices and they need further correction. On the other hand, the prices of some stocks, particularly those of some old mutual funds, are much below their potential levels.

Going by the price trends of different stocks, it becomes quite clear that most investors in Bangladesh market are not interested in stocks that pay handsome cash dividend annually. They have strong liking for small-cap issues that are traded at higher prices out of the expectation for stock dividends and price appreciation of the stocks.

So, it is indeed essential to take out the small-cap companies from the main bourse and create a separate exchange or trading platform for them. Such segregation of small cap companies would help restoration of price stability in the case of large and medium cap companies.

Some countries in the region have formed separate platforms for transactions of small-cap companies that are more liked by small-time and speculative investors.

In the meanwhile, most secrets behind the recent bubble and bust of the stock market have remained buried as none seems to be interested in unearthing the same. The masterminds of the scam, as happened in the case of 1996 scam, in all likelihood would be able to keep themselves miles away from the reach of the long hand of the law.