Stock market rises abnormally right after election

Less than a week after the country had held general elections with the Awami League retaining power, the stock market has seen a sharp rise in index that exceeded earlier post-polls records.

Market experts called the skyrocketing of the share index as outcome of psychological expectations after the vote but also expressed concern over the trend that may jeopardise small investors' interest.

The key index of Dhaka Stock Exchange (DSE) rose 116 points and that of Chittagong Stock Exchange (CSE) gained 399 points on Tuesday. Trade turnover too exceeded Tk 10 billion in Dhaka stock exchange while increased by more than Tk 320 million to Tk 740 million on the day.

The DSE index saw rise by 159 points in six days after the 5 January 2014 elections compared to increase of 386 points in six days after the 30 December 2018 ballot.

The jump in the stock market index led to marker crash twice in recent history -- in 1996 and 2010 and on both the occasions, the Awami League was in office.

Still, it was expected that the share market would be bullish after the general elections with status quo in power. Howeer, stakeholeders termed it an abnormal trend when share prices of companies that do not have stronger fundamentals increased.

Former chairman of stock market watchdog Bangladesh Securities and Exchange Commission Faruk Ahmed Siddiqui said the stock market had shown bearish trend in recent times when some shares were under-valued.

"That the market would rise after the vote was expected. But the way it rose was unexpected. Because, it is merely psychological and it has no correlation with market fundamentals," he told Prothom Alo.

Market analysis shows that banks, insurance, pharmaceuticals, telecommuinications and other companies have been playing a major role in market index rise, thanks to increase in the prices of such companies’ shares.

Prices of shares of several companies owned by newly elected member of parliament Salman F Rahman increased in the past few days. The price of shares of ‘Z’ category company Beximco Synthetics with weak fundamentals rose 25 per cent in the past six trading days while the price of Shinepukur Ceramics Limited increased 14 per cent.

Share prices of Alif Manufacturing Company increased 42 per cent during the period. The company was called CMC Kamal Limited in 2014. AHM Mustafa Kamal, another MP who has been appointed finanace minister, was then the owner of majority stakes of CMC Kamal.

Also, the share price of United Insurance surged by 56 per cent during the said period.

However, according to a report of Marchent Bank IDLC Investments, the BRAC Bank, Islami Bank, Square Pharma, Grameenphone and City Bank -- all that are considered companies of strong economic fundamentals -- had had the most positive impact on the market.

When asked, former DSE director Shakil Rizvi said there were apprehensions among the investors ahead of the elections.

“The investors felt relieved due to the fact that the elections ended without much violence. That has psychological effect on the market, Besides, the companies with stronger fundamentals played a bit of positive role in this regard,” he said.

He, however, underlined the importance of caution to be maintained by the share market watchdog so that none could manipulate the market.
This piece originally published in Prothom Alo print edition has been rewritten in English by Farjana Liakat