Published in The Daily Sun on Wednesday, 19 February 2014.
Bane of Volatile Bourses
Small investors struggle on to stay afloat
Monirul Alam
Though the political situation remains calm and reform schemes are rolling out in parallel with considerable market vigilance and monitoring by the regulators, heavy fluctuations on the stock market is still worrying the small investors.
Demutualisation of the two bourses – the Dhaka and Chittagong stock exchanges – was completed during the past few weeks but the market is still experiencing ups and downs, severely affecting the investments made by the small market players.
The twin bourses saw downtrend in the price indices for the fourth consecutive day Tuesday.
The price index plunged by 12 points from 4683 on Monday to 4671 on Tuesday on Dhaka Stock Exchange (DSE) while the indices on Chittagong Stock Exchange (CSE) dropped 11 points the same day.
In the previous week, the opening day started with a rise in scripts prices with volume of transactions getting bigger, but the price index plunged on the following three days.
Talking to daily sun, capital market analyst Dr Khondakar Golam Moazzem said the market is going through a correction. “Relatively, the market is stable as there is no major ups and downs as the market-regulation procedures are going through a series of reforms—affecting the trade,” Dr Moazzem said.
Dr Moazzem is currently working as additional research director at the centre for policy dialogue and has done several researches on the capital market placing some proposals before the government after the market catastrophe in December 2010.
He said trend of gaining short-term profits is the main cause of the price instability on the stock market.
“Everyone is trying to recover his or her money lost during the 2010 catastrophe or look for yielding profit shortly, which is affecting the share prices,” he said, adding, “What the market needs now is ‘long-term investment.”
Dr Moazzem also said the institutional investors like banks and insurance companies could not play their due roles in the market, resulting in the unpredictability.
He said he had made proposal to enact a guideline for the institutional investors detailing how they would invest in the capital market.
The market analyst said other factors weakening the stock market are inside traders and unseen BO (Beneficiary Owners) account holders.
The demutualisation of DSE and CSE was aimed to prevent the inside-players from market manipulation.
“Demutualisation is a scheme that separates the ownership and managements of the stock markets so that insiders could not influence the script prices,” he said.
“But, still the number of insiders is significant and they are often active in the market. And, they somehow influence the script prices,” Dr Moazzem said.
He said the BO accounts needs to be transparent, which is yet to be ensured.
Meanwhile, in a separate development, the Bangladesh Bank (BB) once again expressed concern about the excess investment of banks and financial institutions on the capital market.
The BB authority also asked such banks and FIs to scale down their investments within the set limit.