Share market: Investors lose Tk 1100b in 48 days

Investors in the Dhaka Stock Exchange (DSE) have suffered a whopping loss of over Tk 1100 billion due to the persistent decline in share prices. 

The bad shares continued to fly high, while the good ones have been underperforming consistently.

The scenario was found in an analysis of share trading in the country’s prime bourse on 48 business days from 18 January to 1 April.

The DSE calculates its market capitalisation daily, on the basis of the market value of listed companies, bonds, and mutual funds. The market capitalisation was Tk 7879.05 billion on 18 January and it dropped by Tk 1100 billion within 48 business days to stand at Tk 6776.74 billion on Monday, 1 April.  

All individual and institutional investors as well as entrepreneurs have been affected directly or indirectly due to the low prices as it invited a shrinking portfolio to them. Those who sold out their shares have suffered financial losses, while those still maintaining their shares saw the unrealised losses being included in their portfolio. 

The continuous decline in the stock market has led to frustration among investors. The market downturn commenced after the Bangladesh Securities and Exchange Commission (BSEC) lifted the floor price of shares on 21 January. It initially resulted in a rise in share prices, but the trend reversed in mid-February and led to a sustained decline.

The floor price was introduced in July 2022, to keep the decline of shares in check. The regulator managed to keep the market under its control throughout the next one and a half years. 

The removal of floor price unleashed a downward trend that has persisted despite efforts to curb it. The key index of the Dhaka bourse, DSEX, plummeted by 68 points or more than 1 per cent to settle at 5,761 points on Monday, which was its lowest position in nearly three years. 

A similar scenario was seen in the Chittagong Stock Exchange (CSE) as its All Share Price Index fell by 117 points or 0.75 per cent on Monday. In both markets, most of the traded issues registered decline in their prices.

At DSE, 79 per cent of issues saw price fall, while only 12 per cent were gainers and 9 per cent remained unchanged. Around 63 per cent of shares traded at CSE registered decline and 29 per cent posted a rise in their prices. 

The Dhaka bourse witnessed share trading for 61 days from 1 January to 1 April. Among the days, the indices declined in 32 days and gained in 29 days.

The declining trend of shares created panic among investors and prompted them to leave the market. Some are selling their shares fearing further losses. 

The Central Depository Bangladesh Limited (CDBL) preserves data of beneficiary owners (BO) accounts of capital market investors. 

According to the CDBL, the number of shareless BO accounts were 319,649 on 18 March and it rose to 353,492 on 1 April, essentially indicating an exit of 33,843 investors from the market within just 10 days. 

An opposite scenario prevails when it comes to the number of new investors. The CDBL data shows that only 2,306 BO accounts were opened in the last 10 working days.

Analysts attributed the declining trend in the market to the regulator's prolonged artificial control through the floor price mechanism. It led to a loss of confidence among foreign investors and uncertainty among local investors. Additionally, the ongoing liquidity crisis in the banking sector has limited capital inflows into the stock market, exacerbating the downward pressure on prices.

Former BSEC chairman Faruq Ahmed Siddiqui told Prothom Alo, “Foreign investors developed an acute trust deficit over our market due to the floor price mechanism. The multinational companies could not send a majority of the declared dividends to their foreign shareholders due to the dollar-crisis. Besides, the foreigners are receiving less profit due to the hike in dollar price. Hence, there has been a significant rise in the selling of shares held by foreign investors.” 

He also highlighted the disparity between bank deposit interest rates and stock market returns and said it has diminished interest in stock market investments.

Failed attempts for recovery 

According to insiders, the regulator phoned top executives of various brokerage houses and merchant banks and asked them to reduce share sales, in an effort to keep the situation under control. However, they are no longer trying to buoy the market. 

BSEC executive director Mohammad Rezaul Karim said, “We want to let the market function at its own pace. Given the extent of the fall, we anticipate a turnaround based on its intrinsic strength, as share prices of many good companies plunged to undervalued levels. Instead of artificially propping up the market, we have bolstered the surveillance system.” 

He also vowed to take immediate action if anyone tries to manipulate the market intentionally. 

According to market insiders, while the reputed shares are falling, the share prices of low-performing companies are being brought up through manipulation. It is a major factor contributing to waning investor interest in the market. 

The regulator did not take any action against the continuous rise of low-quality shares.