The key index of the capital bourse of Bangladesh, DSEX, shed 333 points or 5.96 per cent in May this year alone and dipped significantly to a nearly 38-month low, which turned out to be the lowest among the peer countries last month.
Compared to global counterparts and regional peers, Bangladesh has joined late in the game of rising interest rates and an aligning macroeconomic challenge has risen from tightened money market conditions, including the exchange rate, which hampered the market’s recovery, according to sector insiders.
The just-concluded month was a complete mess for the stock business and a year of disappointment for the capital market as the average turnover and foreign investment hit rock bottom, which was never encountered by investors at such a bad time since the 2010 collapse.
The relentless bearish spell on the country's capital bourse continues, resulting from the enduring pessimism pervading the trading floor due to the dampened confidence among investors amidst an uncertain market outlook, stakeholders also said.
In May, Pakistan’s capital market main index returned 5.47 per cent, which was the second-highest return among the peer countries. India's index return was negative 0.82 per cent last month, while Sri Lanka's was negative 1.09 per cent, according to the monthly market review of EBL Securities, a leading brokerage house in Bangladesh.
It also said that the index returns of Vietnam's main bourse were 3.13 per cent, following Indonesia's negative 2.11 per cent, Philippines negative 4.91 per cent and Hong Kong's 2.63 per cent in the just-concluded month.
Besides, in May, the index returns of Nasdaq's US index were 8.43 per cent, the UK’s main bourse’s index was 1.05 per cent and Shanghai’s key index was negative 0.42 per cent.
EBL Securities said that the rising interest rates in the money market due to the central bank's monetary tightening stance have beimpededor the market to recover from its prolonged downbeat vibe. Additionally, media reports on the National Board of Revenue's proposal regarding the imposition of capital gains tax in the next fiscal year have also triggered investor sentiment further amidst an already depressed capital market.
The market extended its free fall throughout May as sellers maintained their dominance across the trading floor with unnerved investors seeking to minimise further losses, while the majority of scrips turned into falling knives and kept on being stuck at the revised lower circuit without having sufficient buyers for most of the sessions, it said.
Behind the sharp downturn
Earlier, DSEX, the key index of the Dhaka Stock Exchange (DSE), gained only 0.64 per cent in 2023, which was also the lowest among its peers, as most of the stocks were stuck at their floor prices for a long period, weakening investors’ sentiment, and remained clung to an uncertain market outlook over concerns centred on the national election in 2024.
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. The index rose only by 0.64 per cent in the year.
The DSE key index recorded a negative index return of 8.14 per cent in 2022, compared to a 25.08 per cent positive return in 2021.
Market analysts attributed investors’ worries over the country’s weak macroeconomy and the global economic outlook due to the Russia-Ukraine war to the recent stock market’s sharp downturn.
Although the stock market regulator, Bangladesh Securities and Exchange Commission (BSEC), has taken many initiatives to correct the market’s behaviour, the market has remained unstable for a long time.
Despite the capital market almost moving in an isolated manner, the Russia-Ukraine war has affected the Dhaka bourse rudely. However, a newly added macroeconomic challenge arose from tightened money market conditions following the latest policy rate hike that hampered the market’s recovery and led to the likely imposition of a new tax on capital gains.
In this situation, investors are leaving the stock market. They are losing faith that the falling prices will stop soon. Calculated from the beginning of this year, the number of beneficiary owner’s (BO) accounts closed stands at 80,000.
In May this year, a total of 2,173 active BO accounts were shut down.
The floor price conundrum
On July 28, 2022, BSEC imposed floor prices on all securities to prevent shares from falling beyond a certain level amid domestic and global macroeconomic strains.
Because of the unstoppable market fall, investors are now afraid of making long-term investments, causing a severe liquidity crunch in the prime market.
On January 18 this year, BSEC issued an order rescinding the floor price for all listed companies and mutual funds, except for 35 companies’ shares, complying with a long-standing demand from stakeholders. The floor price for the remaining 35 companies was removed later as well.
Then in April, BSEC issued an order recalibrating the circuit breaker, saying that stocks of listed companies would not be allowed to fall more than 3 per cent from 10 per cent based on the previous day's closing price.
Stock market analyst Abu Ahmed, an honorary professor at Dhaka University’s economics department, told The Business Post, “The price of any share cannot fall by more than 3 per cent in a single day, and I think this rule is the main reason for the price fall.”
Mentioning that the country’s overall economic condition is not good, he said, “If a stock starts to fall, selling increase, and before it drops 3 per cent, buyers move. The market has been pushed into a permanent bear market by preventing the rate from falling.”
He also said that foreign exchange reserves are decreasing at an alarming rate. “Reserves cannot be maintained even by controlling imports. The IMF has reduced the reserve target to $14 billion, though it has set a condition to keep the reserves above $20 billion by this June.
“If the reserves drop like this, imports and exports will be disrupted. Naturally, businesses will suffer. This is why investors are selling shares as an early warning, and the price is falling,” he said.
Other reasons are sell-offs by foreign investors and investors' lack of confidence because of disappointing data on major macroeconomic indicators.
A leading stock broker, requesting anonymity, told The Business Post that the big problem in the market was the floor price imposed by the stock market regulator. “This resulted in low-volume trades in the market for the last two years. There was no new investment and no return. The incomes of all stakeholder groups in the market have declined.”
However, the market showed a marginal recovery signal following the prime minister’s order to form a committee to address the current state of the stock market, but it is yet to revive the dampened spirit since the bears firmed their control across the trading floor owing to uncertainties leading up to the tabling of the national budget for FY2024-25 in parliament in the first week of June.
