Regulatory reforms yield results

Dhaka Stock Exchange’s benchmark index DSEX posted robust growth of 25.08 per cent to stand at 6,756 points on Thursday, the last session of 2021, thanks to effective regulatory measures that managed to regain investors’ confidence.

Interim growth rates place Bangladesh ahead of Pakistan, India, the United Kingdom, and Japan.

This year, the key index was at its all-time highest at 7,368 points. On the first trading day of this year, the DSEX stood at 5,618 points.

Analysts and market insiders said that investors regained confidence after the Bangladesh Securities and Exchange Commission (BSEC) took some punitive and reformative actions to bring discipline to the market.

They also said that investors’ buying rush continued as they expected better returns from the bullish market against the low bank deposit rates.

Meanwhile, despite the Covid-19 pandemic, market capitalisation at Dhaka bourse rose to Tk 5,42,196 crore, or 20.96 per cent, this year. At the end of the year, its market cap to GDP ratio stood at 18.01 per cent.

Between June 9 and June 25 last year, turnover at the DSE remained below Tk 100 crore for 13 consecutive sessions, tumbling to a fresh 13-year low of Tk 38.6 crore on June 21, 2020. At the end of this year, the average turnover increased to Tk 1,476 crore on the Dhaka bourse.

The gain in index reflects investors’ optimism about the post-Covid turnaround of the economy. The expansionary monetary policy and investors’ expectation of improvements in corporate governance might have played a role as well, Shahidul Islam, chief executive officer (CEO) of VIPB Asset Management, told The Business Post.

Best performance among peer countries

In the outgoing year, the index return for Pakistan’s key index, KSE 100, was 1.5 per cent followed by 4.9 per cent for Japan Nikkei 225, 14.8 per cent of UK FTSE100 and 21 per cent of Indian SENSEX.

The key index of DSE, which gained 21.3 per cent in 2020, was the highest among its peers, despite the 66-day recess for the countrywide general shutdown to slow the spread of coronavirus.

This was a significant improvement for the DSEX, which fell 17.3 per cent in 2019 while bourses in emerging Asian countries increased.

The DSEX closed 2020 at 5,402 points despite being on a free fall between January and March as investors all over the world panic sold as the novel coronavirus from Wuhan, China was putting down its roots everywhere.

At one point, the index was the lowest since January 2013.

On the other hand, the price-to-earnings (PE) ratio of DSE is lucrative for investment as it stands at 17.58 as of December 30 this year. 

Why did the market perform well in 2021?

A number of senior bankers said that due to the intermittent shutdown at home and abroad, money laundering opportunities have shrunk to a great extent, which has resulted in pumping a large portion of money into stock and property markets.

Speaking to The Business Post, DSE Director Shakil Rizvi said, “A few years ago, our stock market was in a liquidity crisis, but now the scene is different. The market has become bigger due to various initiatives taken by the current regulatory body.

In a statement on Thursday, the bourse authorities said although the Covid-19 pandemic had a negative impact on the overall economy, the country’s capital market is showing signs of recovery.

Every day, new investments come into the market. At the same time, new investors also joined the secondary market, it said.

As a result of the current commission taking some positive steps, the country’s capital market maintained an unimaginably good position even during a global pandemic, the DSE said.

Chittagong Stock Exchange (CSE) Chairman Asif Ibrahim told The Business Post that BSEC had taken many steps to restructure and reform the market.

The commission’s most notable measures regarding issues, including market manipulation, mandatory shareholding by sponsor-directors, and junk stocks, He said all these things gave confidence to general investors to park their funds at the bourse.

Regulatory moves this year

The current regulatory body has been trying to make the market investor-friendly and these efforts should continue for the sake of investors and the economy, stock market analyst Abu Ahmed said.

After taking office, the new board of BSEC has taken a lot of initiatives, such as strengthening monitoring to stop manipulation, mandatory shareholding by the directors, bringing more good companies to the market and bringing junk stocks to the main trading platform by improving their compliance and financial basis.

Besides, in June, the stock market regulator introduced a pro-rata basis allotment of initial public offerings (IPOs). Under the pro-rata system, each IPO applicant gets shares if they have a minimum secondary market investment of Tk 20,000. The initiative hit the stock indices, according to market insiders.

The outpouring of investor interest is all because of the positive regulatory moves the commission that took charge in May 2021 has been taking to instil a solid sense of discipline in Bangladesh’s capital market.

“In the last 10 years, the stock market was not allowed to run normally. The regulatory body controlled the index, causing damage to the confidence of investors,” said a stockbroker requesting anonymity.

Investors’ confidence in the new commission, along with favourable economic indicators and the resumption of economic operations, has tempted seasonal retail investors to pour fresh funds into the market, said Shakil Rizvi, a director of the DSE.

The BSEC relaxed the margin loan norms, aiming at increasing fund flow to the cash-starved stock market.

However, in the case of ‘Z’ category companies, they can provide margin loans after seven trading days from the date of categorisation.