Since the start of the Russia-Ukraine war, Bangladesh’s capital market has been facing non-stop volatility, with a nature where the market tends to clamber for one or two days only to fall for the next several days.
Although the stock market regulator, Bangladesh Securities and Exchange Commission (BSEC), has taken many initiatives to correct the market’s behaviour, the market remains unstable for a long time.
Despite the capital market almost moving in an isolated manner, the Russia-Ukraine war has affected the Dhaka Stock Exchange (DSE), the country’s premier 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 imposed a new tax on capital gains.
DSEX, the key index of DSE, fell by 244 points this month so far, owing to the huge share sell-off.
The key index dipped below the 5,400 mark after more than three years, as jittery investors continued to dump their holdings to avoid further losses.
On Tuesday, DSEX finally slid more than 22 points to settle at 5,371 at the end of trading, which is the lowest since April 27, 2021.
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 BO accounts closed stands at 80,000.
Fearing that prices will continue to fall, many investors are now even looking to sell shares at a loss. A large number of shareholders of most listed companies have been ordering the sale of shares for several days, but they are not finding suitable buyers.
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.
At the same time, frequent regulatory policy changes and the weak regulatory framework have become a common thing in Bangladesh’s capital market, eroding investor optimism to a large extent.
Because of the unstoppable market fall, investors are now afraid of making long-term investments, causing a severe liquidity crunch in the prime market.
Moreover, investors are now opting to remain on the sidelines instead of putting funds into scrips, as they lack a clear understanding of the nature of the nature of the market.
In this unfavourable situation, investors are shifting their intentions toward short-term and quick profit-gaining opportunities instead of long-term investments.
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 (DU) 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 said that foreign exchange reserves are decreasing at an alarming rate. “Reserves cannot be maintained even by controlling imports. The IMF has reduced the reserves 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.
Al Amin, another capital market analyst and associate professor of the accounting and information systems department at DU, said that the news of a tax on capital gains in the stock market has played a role in the price fall. In Bangladesh, the stock market sees prices increase for less time and decrease for a longer time. That’s why ordinary investors cannot make a profit.
DSE Chairman Dr Hafiz Md Hasan Babu in a letter on Monday urged the National Revenue Board chairman to not impose a new tax on capital gains considering the transitional period of the market.
“The Covid-19 pandemic and the Russia-Ukraine war, like other sectors of the economy, have had a negative impact on the country’s capital market,” read the letter.
The DSE has already submitted several tax-related proposals to the NBR for inclusion in the budget for FY2024-25 to further develop and accelerate investment in the capital market.
DSEX ends day at 5,371 points
DSEX on Tuesday declined by 22.6 points and settled at 5,371 points, down from the previous trading session’s 5,394 points.
Despite a positive start with the benchmark index surging over 90 points in the first hour of trading following some recent regulatory moves, the morning optimism failed to sustain itself for long as risk-averse investors continued their sell frenzy due to the confidence crisis and subdued market sentiment, EBL Securities said in its daily market review.
Meanwhile, market turnover slightly increased by 5.4 per cent to Tk 591 crore, up from the previous session’s Tk 561 crore. Of the 396 issues traded, 102 advanced, 234 declined and 60 remained unchanged on Tuesday.
The blue-chip index, DS30, and the Shariah-based index, DSES, closed at 1,929.93 and 1,174.56 points, respectively. Most of the large-cap sectors also posted negative performance on Tuesday.
Block trades contributed 11.9 per cent of the overall market turnover. Orion Pharma was the most traded share with a turnover of Tk 43 crore.
Meanwhile, the Chittagong Stock Exchange (CSE) also settled on red terrain on Tuesday. The selected indices, CSCX, and All Share Price Index, CASPI, lost 31.8 and 46.8 points, respectively.
