Home ›› 03 Jan 2023 ›› Front
Bangladesh’s stock market appears to have lost its edge among its peers in 2022 as investors worried about the local and global macroeconomic outlooks, as evidenced by the recent sharp downturn in the market.
The Dhaka Stock Exchange’s (DSE) key index, DSEX, recorded a negative index return of 8.14 per cent in the just concluded year, compared to a 25.08 per cent positive return in the previous year, 2021.
Market analysts attributed the recent stock downturn to investors’ worries about the country’s weak macro economy and the global economic outlook in the face of the Russia-Ukraine war.
In 2022, Indonesia’s capital market returned 6.98 per cent, which was the highest among its peers. India’s index return was 4.42 per cent while Thailand’s was a negative 4.11 per cent. The index return of the countries’ main stock exchanges was higher than that of Bangladesh.
Bangladesh was ahead of Pakistan, Malaysia, Sri Lanka, Taiwan, Vietnam, and the Philippines, according to the yearly market review of LankaBangla Securities, a leading brokerage house.
Among its Asian peers, only the stock market regulator in Bangladesh imposes the floor price.
In 2022, the key index of the Dhaka bourse plunged by 549.8 points or 8.1 per cent and ended at 6,207 points, which was 6,853 points on the first trading day of the year.
DSEX rose by 25.08 per cent to close at 6,756.65 points on December 30 in 2021 after gaining 950 points in the previous year. The DSEX hit a record high of 7,367 points on October 10, 2021.
The benchmark index closed in 2020 at 5,402 points despite being on a free fall between January and March as investors all over the world panicked when the novel coronavirus began to spread from Wuhan, China.
Earlier, the key index gained 21.3 per cent, the highest among its peers, despite the 66-day recess during the countrywide general shutdown imposed to slow the spread of coronavirus.
This was quite a turnaround for the DSEX, which fell 17.3 per cent in 2019, while bourses in the emerging Asian countries registered growth. At one point in 2019, the index was the lowest since January 2013.
Why market fell in 2022
The capital market of Bangladesh had a tough ride in 2022 due to economic challenges resulting from global adversities, such as the escalating Russia-Ukraine war and worldwide recessionary forecasts, market insiders said.
Despite the year starting on a positive note owing to investors’ optimism regarding economic recovery from the impacts of Covid-19, the momentum did not sustain for long as fears loomed over the Russia-Ukraine conflict, instigating an intense bearish sentiment in the capital market that compelled the market regulator, Bangladesh Securities and Exchange Commission (BSEC), to impose a 2 per cent lower circuit breaker in order to help the ailing market recover.
However, this could not alleviate investors’ worries much due to the subsequent contractionary policies taken by the Bangladesh Bank to tame the effects of rising inflation,
soaring dollar rates, depleting foreign currency reserves, and declining balance of payments, read the year-end market commentary of EBL Securities.
Banks faced difficulties in paying import bills almost throughout the year, which directly and indirectly impacted businesses and consumers. The local currency was devalued by 24.41 per cent against the USD in 2022 despite a series of initiatives to cool down the forex market.
Exporters gained from the devaluation, but importers and consumers were facing losses. Moreover, small and medium businesses suffered difficulties in importing goods or raw materials due to USD shortages.
Meanwhile, the capital market also felt the heat as the core index plunged below the psychological threshold of the 6,000-mark, propelling the BSEC to reinstate the floor price by the end of July 2022.
The floor price, however, could not entice investors for long as economic fears were heightened by a decade-high inflation rate in August 2022, following a 20-year-high increase in fuel and energy prices.
The stock market regulator recently lifted the floor price restrictions from 169 scrips to enhance liquidity in the market. But the 1 per cent lower circuit breaker on those scrips turned out to be an impediment to attracting investors’ participation and rather resulted in the single-day turnover falling to a 30-month low on December 26, 2022.
Despite continuous efforts from the regulators, including a deadline extension by the Bangladesh Bank to adjust the capital market exposure of banks, the market displayed a dismal performance in 2022, according to a top official of a leading brokerage house.
Kazi Ahsan Maruf, managing director of Ekush Wealth Management Limited, said alongside general investors, institutional ones are also now staying on the sidelines because they all thought once the floor price is withdrawn, most shares would fall further on a massive scale.
“It was an unwise regulatory decision to artificially control share prices by imposing floor prices. Besides, the countrymen have lost confidence in the financial sector, hurting the capital market as well,” he added.
Furthermore, the macroeconomic worries the New Year inherited from 2022 amid the global economic slowdown were also lowering investors’ confidence about a buoyant future market forecast, experts opined.
Sayadur Rahman, president of the Bangladesh Merchant Bankers Association, told The Business Post the DSE turnover might plunge sharply due to two reasons.
“Firstly, the country’s shaky banking sector puts an ominous impact on the capital market. Secondly, most stocks have been stuck at their floor prices for a long time, weakening investors’ sentiment,” he said.
Investors continued to exit when the majority of the stocks saw their losing streak extend because the recent regulatory action could not convince them that optimism lies ahead, analysts commented.
