Market manipulation sends shares reeling

Sujoy Mahajan . Dhaka | Update:

A collected imageThe country’s stock market has been experiencing a ‘controlled’ fluctuation between bullish and bearish trends, the index shooting up and then plunging down within just a matter of two or three months. Persons related to the market say a coterie of investors are manipulating the market to bring it under their control. They are using politics, the election and other national issues, including the budget, to spread rumours and drive the market index up and down to suit their interests.

The present slump has taken the share market back to the post-election state when (on 27 December) the DSEX index was 5386 points and transactions stood at Tk 5.38 billion. On Sunday the index fell to 5434 points and transactions went down to Tk 3.31 billion. And yet over the past three months the index had increased to 5950 points and transactions had hit around Tk 12 billion.

Market analysts, observing the performance of the country’s main bourse Dhaka Stock Exchange (DSE) over the past five years, say that there has been a controlled manipulation of the market, causing differences in the index by 400 to 800 points.

Speaking to Prothom Alo, former chairman of the stock market regulator Bangladesh Securities and Exchange Commission (BSEC), Faruque Ahmed Siddique, said after the 2010 crash, there has been a sort of controlled rise and fall in the market. It seems that the market is being manipulated to gain control. He said that there needs to be an investigation into the matter or else the common investors will suffer.

Others related to the market have said that common investors are encouraged to buy shares when the indexes are up. That is when the big investors sell their shares and become inactive. The index thus plummets and when it reaches a certain low, these big investors start buying up the shares. When the prices go up, the common investors become active in the market and then the big investors start selling. They make a profit and then temporarily draw back.

The large companies have a lot of influence on the market trends. The value of these companies’ shares goes up and the index falls. The manipulators sell the shares of the big companies, driving the indexes up and down. The companies resort to pumping and dumping, selling cheaply purchased stock at higher prices.

Sources say that there are around 25 to 30 such companies whose prices have gone up abnormally over the past one year for no apparent reason. Shurwid Industries’ shares doubled in price. On 8 April last year the market values of the company’s shares stood at Tk 18. At the end of yesterday's trading (7 April 2019), this had shot up to Tk 38. The share price of Monno Ceramic and BD Autocars also doubled. And the closed-down company Emerald Oil’s share price at the end of yesterday's trading went up by Tk 1.6, which is 10 per cent, in just a matter of a day. Faruque Ahmed Siddique said that there can be no reason other than manipulation for a bad company’s share prices to go up.

Market analysts also blame the inflated trading of valueless company IPOs and placement shares for the market’s liquidity crisis. A former director of DSE, on condition of anonymity, said a thriving informal placement market had emerged outside of the secondary market. Common investors are lured to withdraw their money from the market and invest this in placements. This is a major reason behind the market’s liquidity crisis. Placements lead to forward sales, buying shares cheaply and selling it to another at higher prices.

In recent times the IPO shares of certain listed companies have played a role in creating a liquidity crisis in the market. On 6 February Genex Infosys began market transactions and on the very first day its Tk 10 IPO share prices shot up to Tk 56. At the end of yesterday's trading (7 April), the prices had plummeted to Tk 38. The same occurred in the case of SS Steel, Kattali Textiles, Indo Bangla, Silva Pharma other companies who began trading recently. At the outset of trading, the share price of these companies went up multiple times the IPO price and so the IPO share holders sold their shares and made profit. Later many investors faced losses with their investments being held up after purchasing shares of these companies from the secondary market.

Professor of economics at Dhaka University, Mohammad Helal, said that despite having no demand in the market, small-cap company IPOs have been approved and the supply increased, driving money away from even the bearish market. Often when a good company enters the market, so do new investors. But it is quite the opposite in the case of the companies that are now coming to the market. This is creating an imbalance between demand and supply, having a negative impact on the market.

Over the last four working days, Grameenphone’s shares have fallen by Tk 42. Thus those who purchased the company’s shares on 1 April are losing Tk 42 per share. Market pundits say this fall in share price occurred due to Bangladesh Telecommunications Regulatory Commission (BTRC) issuing a notice to Grameenphone regarding Tk 125 billion in dues.

In the meantime, top trader United Power’s share prices fell by Tk 34 over the past four working days. Brokerage houses say that the prices had fallen due to bargaining with the share market regulatory agency over selling share of around Tk 12 billion to foreign investors.

In 2018, the DSE index saw six significant ups and downs, with the differences swinging by 400 to almost 800 points. From 1 January to 28 March that year, the DSEX index fell by 765 points, and then in a matter of two weeks it went by almost 400 points. In the same year till 4 June the DSEX index again fell by 565 points and then till 28 August went by around 300 points. In September-October the index fell by 407 points. Till November-December it remained a bearish market due to the national election. After the 30 December election, it went up by 564 points, but has seen a steady slump since then.

Speaking at an event on 28 March, finance minister AHM Mustafa Kamal said that the stock market was a challenge, but he was an accountant and would only ensure profit, not losses. He said he would make sure the investors turned out to be winners. However, despite the finance minister’s assurances, the market indexes and trading continue to decline.

* This report appeared in the print edition of Prothom Alo and has been rewritten here in English by Ayesha Kabir

   
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