Why stocks soar in pandemic?

Lackluster business, little scope to syphon off money, dull returns from banks and individuals’ excess liquidity -- all that drew a cross section of people towards the capital market witnessing surge, thereby instilling confidence in investors.

Talking to a number of senior bankers, it was learnt that due to intermittent shutdown at home and abroad money laundering opportunity has shrunk to a great extent that resulted in pumping a large portion of money into stock and property markets.

“A huge amount of tainted money is being invested in the market every day by those seeking to earn quick bucks since they cannot send money abroad as smoothly as they could before the pandemic,” a senior banker of a private commercial bank told The Business Post.

He stated that black money holders have also been investing in property market as the current situation has made their siphoning bid tougher.

Besides, owners of many small and medium enterprises are also pouring their idle fund into the bull market for short-term gain as business expansion during the Covid period appears risky.

“Inspired by the recent development and upward trend in stock market, I have withdrawn my fixed deposit and invested into stocks. It is because of low deposit rate,” Md Kawser Khondaker, a resident in the capital’s Mirpur told The Business Post.

“I hope that return will be better than that from deposit as my fund is being managed by a professional broker.”

“With the outbreak of the Covid-19 pandemic in March last year, investment and business activities came to almost standstill and so are they till now. As a result, small and medium entrepreneurs did not expand their business but they have funds,” said Ahsanur Rahman, chief executive officer, BRAC EPL Stock Brokerage Limited.

As there is no investment opportunity, people having idle fund preferred to invest in the stock market as they see low deposit rate, he explained.

A good number of small business owners especially from trading sector have made investment as they want to make gain taking into account the present stable and bullish market situations.

Investors who planned to make new investment could not do so due to the ongoing pandemic. As a result, they made investment in the stock market to earn better than the current deposit rate, according to a stockbroker.

On top of that investors’ confidence has boosted after the formation of Capital Market Stabilisation Funds, which has also been intensified by the recent roadshow to attract foreign investment to stock market, he added.

Meanwhile, the government officials have also come up with new investment as their income did not get hit by the Covid-19, rather their spending fell due to home office.

“In recent times, we have received deposits from the government officials, who are new investors and they are making investment with a long-term plan as their confidence grew in the wake of regulatory reforms and close monitoring to stop foul play,” said another stockbroker.

The children’s education expenses, cost of pleasure trips and other expenses remain unchanged, which gave leverage to the public servants, he added.

Md Sayadur Rahman, managing director, EBL Securities Limited, told The Business Post many fresh funds have been coming in over the last few months. However, it is not possible to quantify that.

The sources of the fund are surplus money of the investors. However, it is not bringing loans like that in 2010. These are due to increased confidence in the market. Their interest in the market is also growing because of the fact that they are getting more returns from the capital market, he argued.

Sayadur, also president of the Bangladesh Merchant Bankers Association, said the institutional investors are also investing with balance. Investors should be informed as well as analytic when it comes to investment.

Extended credit facilities till 8,000-mark of DSEX kept investors buoyant on sector-wise selective issues while the regulatory approval to the board of the Capital Market Stabilisation Fund has made investors confident on the trading floor.

The Dhaka Stock Exchange fared well with robust growth in indices and turnover as investors poured a large amount of fund on equities hoping a better return.

DSEX, the key index of the Dhaka Stock Exchange (DSE), posted sustained growth by nearly 90 per cent to stand at 6,842 points on Sunday. The gain is calculated based on the lowest market at 3,604 points as on March 18, 2020.

On the other hand, the daily turnover recorded Tk 2,939 crore on August 9 while the average daily turnover stood at Tk 2577 crore last week.

Stock analysts and brokers attributed low interest rate on deposit, sluggish investment, regulatory reforms, increasing loan margin ratio, amendment to initial public offering and investment of untaxed money into the bull market in recent months to the surge in bourse.

People have been turning to stock market as an alternative to low bank deposit rates, AB Mirza Azizul Islam, economist and financial adviser to a former caretaker government, told The Business Post.

Stock market analyst Abu Ahmed, an honorary professor at Dhaka University’s Department of Economics, said investors have got their confidence back in the wake of governance steps taken by the Bangladesh Security and Exchange Commission (BSEC).

“The recent steps aimed at protecting retail investors’ rights and regaining their confidence have started yielding positive outcomes,” BSEC Chairman Prof Shibli Rubayat-Ul-Islam told The Business Post.

“We will not back down from the goal of establishing good governance in the capital market,” he pointed out.

Stock indices record high

The Dhaka bourse continued its record-breaking bullish trend and reached a new height of 6,842 points with a gain of 81.61 points or 1.20 per cent at the end of Sunday’s session. It is the highest since its inception in January 2013, and the lowest was 3,604 points on March 18, 2020.

Besides, the market capitalisation of the Dhaka Stock Exchange has also stood at the historically highest level of Tk 5,54,439 on the day.

The daily average turnover declined by 3.21 per cent to close at Tk 2,578 crore in the week. The average turnover is still higher than that of the previous month as the key performance indicator was Tk 2,140 crore in July.

The turnover increased by 21.97 per cent to Tk 2706 crore in Dhaka bourse.

The Bloomberg research data shows that DSEX, the key index of the DSE, posted robust growth by 83 per cent to stand at 6,596 points as of August 5 of 2021.

The data reflects that Pakistan key index, KSE 100, is back in the game with 75 per cent followed by 68 per cent of Japan Nikkei 225, 55 per cent of Chinese SZSECOM, 43 per cent of UK FTSE100, 23 per cent of Malaysia FBMKLCI index and 21 per cent of Hong Kong HIS.

On the other hand, the price-to-earnings (PE) ratio of the Dhaka Stock Exchange is lucrative for investment as it stands at 15.86 as of August 5.

The PE ratio of India stood at 30.38 followed by Thailand 27.02, USA 23.91 and Vietnam 16.88.

The PE ratio refers to a valuation ratio of a company’s current share price compared with its earnings per share.

Why the market performed well

Stock market stakeholders believe that the rise is contributed to by several factors including the scope for whitening black money in the budget of Fiscal Year 2021-2022.

Inventors’ strong buying support continued in selective issues and the market stood firm at the historically highest level.

The cheery investors exerted their enthusiasm riding on the securities regulator’s move to boost up the supply of liquidity in the capital market.

The BSEC allowed the investors to avail credit facilities as per the existing margin loan ratio until the benchmark index of the Dhaka bourse exists below 8000 points.

Mirza Azizul Islam, also a former chairman of the stock market regulator, said the investors are rushing towards the capital market because of lower returns on the money market and limited scope of investment in other instruments amid the reopening of economy.

The new commission has been trying to make the market investor-friendly and these efforts should continue for the sake of investors as well as for the economy, opined Stock market analyst Abu Ahmed.

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 in the market and also bringing junk stocks to main trading platform by improving their compliance and financial base.

In June this year, HSBC said Bangladesh stocks hold opportunities for fund managers looking to diversify their portfolios and there could be “hidden gems” among the public-listed companies there.

Dhaka Stock Exchange Director Shakil Rizvi told The Business Post, “A few years ago our stock market faced a liquidity crisis, but now it throws up a different picture. The market has become bigger as a result of various initiatives taken by the present regulatory body.”

Rizvi, also a former president of Dhaka Stock Exchange Brokers’ Association, argued that ensuring accuracy in financial statements, good governance in firm operations and automation are prerequisites to making the stock market vibrant.

Besides in June, the stock market regulator introduced pro-rata basis allotment of initial public offerings (IPO).

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 the market insiders.