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Bangladesh’s bourse showed worst performance among peers in 2023

Niaz Mahmud
02 Jan 2024 22:06:32 | Update: 02 Jan 2024 22:19:21
Bangladesh’s bourse showed worst performance among peers in 2023

DSEX, the key index of the Dhaka Stock Exchange (DSE), gained 0.64 per cent in 2023, the lowest among its peers, as most of the stocks have been stuck at their floor prices for a long period, weakening investors’ sentiment, and remained clung to an uncertain market outlook over concerns centring the upcoming national election. 

The just-concluded year was a complete mess for the stock business and a year of disappointment for the stock market as the average turnover and foreign investment reached rock bottom, which was never encountered by investors at such a bad time after the collapse in 2010.

The capital market also felt the heat as the core index of the country’s premier bourse plunged below the psychological threshold of 6,000-mark, forcing the stock market regulator to reinstate the floor price at the end of July 2022, which is still effective.

DSEX ended at 6,246.49 points on the last trading day of 2023, which was 6,206.81 points on the first trading day of the outgoing year. Index rose only by 0.64 per cent in the year.

The DSE’s average daily turnover fell by 39.83 per cent to Tk 578 crore in 2023. It was Tk 960 crore in the previous year.

Market capitalisation to GDP ratio declined to 17.59 per cent in the outgoing year, down from 19.14 per cent in 2022.

The Dhaka Stock Exchange's key index recorded a negative index return of 8.14 per cent in 2022, compared to a 25.08 per cent positive return in the previous year, 2021.

Market analysts attributed investors’ worries over the country’s weak macro economy and the global economic outlook due to the Russia-Ukraine war to the recent stock market’s sharp downturn. 

In 2023, Pakistan’s capital market main index returned 51.9 per cent, which was the highest return among the countries. India's index return was 24.5 per cent during the period, while Sri Lanka's was 7.1 per cent.

The index returns of Vietnam main bourse’s index 12.1 per cent, following Indonesia 3.7 per cent, Philippines 13.6 per cent and Malaysia 4.5 per cent in the just-concluded year, according to the yearly market review of LankaBangla Securities, a leading brokerage house in Bangladesh. 

The capital market of Bangladesh had a tough ride due to economic challenges resulting from global adversities such as the escalating Russia-Ukraine war and worldwide recessionary forecasts, the market insider said. 

The continuation of the floor price mechanism has been hurting liquidity and fund flow into the market as around 60 per cent of the total market capitalization (excluding debt securities) was stuck at the floor price being mostly illiquid throughout the year, which is also evident from the daily average turnover falling by 39.8 per cent as compared to the previous year, the yearend market commentary of EBL Securities reads.

Overall, the capital market of Bangladesh navigated through a gloomy landscape in 2023, owing to internal constraints and challenging external factors, said EBL Securities.

Exporters in the country gained from those devaluations, but importers and consumers were at a loss. Moreover, small and medium businesses suffered difficulties in importing goods or raw materials due to the USD shortage.

It was an unwise regulatory decision to artificially control share prices by imposing floor prices. Besides, the countrymen have lost confidence in the country’s financial sector, hurting the capital market as well, they added.

Market insiders said that 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; and secondly, most of the stocks have been stuck at their floor prices for a long span of time, weakening investors’ sentiment.

Investors continued to exit as the majority of the stocks extended their losing streak because the recent regulatory action could not convince them of an optimistic market forecast, analysts commented.

They also said that the obstacles which prevented investors from entering the market must be addressed. In this case, a good company has to pay the premium according to their respective eligibilities.

Apart from lack of confidence in the regulator, investors have been grappling with a number of issues, including rising non-performing loans and liquidity shortage in the financial sector.

Other reasons are sell-offs by foreign investors and investors' lack of confidence for long because of disappointing data on major macroeconomic indicators.

Talking to The Business Post, DSE Brokers Association of Bangladesh (DBA) president Saiful Islam said the year 2023 was a big challenge for the overall economy, and the stock market was not immune to this challenge.

He further said that the big problem in the market was the floor price imposed by the stock market regulator. This results in low-volume trades in the market. There was no new investment. No return was found. The income of all stakeholder groups in the market has declined. All this has created constraints on the capacity of the stock exchanges.

Saiful, also a director of BRAC EPL Stock Brokerage Ltd, said that the number of new good IPOs coming up should be increased next year. “Let the market take its course.”

He believes that investors' confidence can be restored if the floor price in New Year is withdrawn and trade volume increases in the market.