Stock market: Investors lack trust as manipulation fear looms

Investors have been turning away from the capital market due to the fear of market manipulation.

Even the panic-stricken investors are offloading their good stocks, which is eventually dragging down the overall share prices in the market.

The country’s prime bourse, Dhaka Stock Exchange (DSE), posted a significant fall in its indices on Monday, with 83 per cent of traded issues ending the day in red.

The key index – DSEX – dipped by 70 points or nearly 1.15 per cent to 5898 points on Monday, which was the lowest in nearly 34 months. The free-fall continued as the index plunged to 5814 points on Tuesday.

Experts mentioned the trust deficit among investors and fear of market manipulation as the key reasons behind the losing streak. The consistent decline of indices developed panic among the investors and prompted them to embark on a clearance sale to ensure a safe exit from the market.

The unusual rise of bad stocks due to manipulation and the fall of good ones have developed a crack in the confidence of investors and invited panic in the market, added the experts.

A number of sources inside the market indicated that a group of the market is manipulating the bad stocks.

Faruq Ahmad Siddiqi, former chairman of Bangladesh Securities and Exchange Commission (BSEC), said it was expected that there would be a marginal fall in the market following the withdrawal of the floor price. But the current trend of decline is mainly due to the panic among investors.

LankaBangla Securities, a brokerage house, conducted a survey titled ‘The Bangladesh Capital Market Sentiment Survey-2024’ on a total of 100 investors from various backgrounds between 13 December 2023 and 20 January this year.

Nearly 78 per cent of investors said the fear of manipulation impacted the market negatively and developed a crack in their confidence last year. Around 66 per cent of investors said they found their trust in the market decreased in 2023. They also identified the prevailing lack of trust as the prime concern for the capital market.

Faruq Ahmed Siddiqi pointed out the regulator’s failure to properly respond to the incidents of manipulation. He said, “The regulating agency did not take any action against the unusual hike in the prices of bad stocks through manipulations. Rather, the good shares saw a decline in their prices. Therefore, a section of investors lost their interest in the market.”

The low-cap stocks dominated the turnover list at the Dhaka bourse on Monday. Golden Son became the most traded share on the day. Its price went up by Tk 0.40 to Tk 23.60 in the opening hours but fell later to Tk 21.10. Eventually, the share registered a 10 per cent fall compared to the previous day.

On the list of most traded stocks, Golden Son was followed by Fu-Wang Ceramic, Golden Harvest, Lovello, and Central Pharma -- all are weak and loss-making companies.

Insiders said a quarter is manipulating the market using the low-cap stocks and making the market dependent on these shares. The bad shares are gaining disproportionate prices while the good ones are declining. Hence, the cautious investors are offloading their good shares too.

There are some instances where general investors suffered the maximum losses in the last two years.

The share price of Sea Pearl Beach Resort, which was Tk 44 in July 2022, embarked on a bull run and exceeded Tk 320 within six months. Inspired by the good returns, some general traders invested in the share and purchased it from the manipulators at a price higher by at least Tk 200 than the regular price.

Later, the share registered a free fall, and the price plummeted to Tk 93, forcing the general investors to incur massive losses within just six to seven months.

Investors of some 15-20 shares, including Emerald Oil, Paper Processing, and Golden Son, went through a similar experience. They get their funds stuck as the manipulated shares do not attract any customers during the free-fall. The investors cannot even sell those with a big loss.

According to market insiders, a group carried out the manipulations in the last two years, taking advantage of the floor price. But the regulator did not take any action in this regard.

They said the regulator’s inactivity encouraged the manipulators and disappointed the investors. The market is now reflecting myriad irregularities taking place in the last two years.

Individuals associated with the market said the regulator has completely failed to stop market manipulation. In many cases, with the blessing of regulatory agencies, some manipulators have 'gamed' the market as their wish. All are now paying the price due to a number of beneficiaries.

Rejaul Karim, executive director and spokesperson of the BSEC, said some weak companies have recently registered an unusual rise in their share prices, while some good ones saw a decline.

“We hope that the good shares will rebound soon and it will impact the market positively,” he added.