DSEX plunges to 33-month low

Stocks are on free fall and nothing is helping investors retain the value of their assets.

DSEX, the broad index at the Dhaka Stock Exchange (DSE), has lost 1.51 percent, and has closed at 4,933 points, which is a 33-month low.

The benchmark index came down to this level from 5,260 point 13 working days ago.

The market witnessed intense sales pressure on Wednesday as the DSE recorded a turnover above Tk500 crore, 23 percent higher than in the previous session.

In a typical bearish day, the volume hike indicates adamant selloffs, said market analysts.

They are also concerned to find that the top 30 companies in the DSE turnover table on Wednesday includes an unusually large number of poorly performing businesses.

It means that a group of investors is counting on the bearish condition and is trying to push up the price of weaker stocks that are usually overlooked during down days, said an analyst seeking anonymity.

Companies with stronger fundamentals among the top 30 have suffered a capital loss, and investors are on a buying spree for weaker stock.

Moderate forced sales from margin accounts

Sources in the brokerage community told The Business Standard that forced selling from margin accounts is taking place on a moderate scale because stock brokers are under pressure to protect their own money lent to clients for buying additional stock.

They said that many investment accounts with margin loans are now subject to forced selling because the equity of the account holders is gradually being eroded amid a continuous downturn.

Analysts have warned that if deserving stock brokers trigger the forced selling after repeated margin calls, the market may face a fresh round of selloffs that can push the indices further down.

Why the fall?

Experts blame the money market situation, regulatory unpredictability, risks in different sectors and deteriorating investors' sentiment for the ongoing sales pressure. 

Signaling some improvement few weeks ago, the money market too is adding to the worries of stock investors as the inter-bank rates are high again.

The latest bad news for stock investors is the government attempt to pull retained earnings of state-owned entities. Investors fear that this move by the government will reduce bank deposits and earnings of the state-owned entities.

Foreign investors are selling too

A Chartered Financial Analyst working for a top brokerage firm said, "Foreign investors nowadays are not comfortable because they see a heightened regulatory risk here."

Foreign investors are also more conservative now as they are discounting an exchange rate risk, he said.

They are subscribers of world-class research reports which have been suggesting that the Bangladeshi Taka should be exchanged at a level of 90 against the US dollar, he added.  

If Bangladesh Bank allows the devaluation up to that level, foreign portfolios will lose 5 percent of their values in dollar terms. 

But Bangladesh, with its strong external accounts, is not too worried about this.   

Year-to-date data reveals foreign investors are pulling their funds from local stock exchanges each month, adding to the share selling pressure.

The investigation fear

Securities regulator Bangladesh Securities and Exchange Commission has conducted a thorough investigation to look into trading activities at top market intermediaries.

The main intention is to see if there was any motivated selling effort to drag the stock indices down artificially.

Big investment account holders have become more nervous about this investigation attempt, say market professionals.

A diverging scenario?

Chartered Financial Analyst Asif Khan, a partner of EDGE Asset Management Company, told The Business Standard that the external accounts of Bangladesh are stronger than ever before.

The money market scenario is much better than it was in the first half of the year, he said. He is expecting a further improvement as deposit growth in banks is outpacing the growth in private sector credit growth now.

He is not worried about the outcome of the government's plan to utilise the idle funds of its entities as the government will not take away anything as free lunch.

"There must be a realistic mechanism that should ensure a win-win situation for all stakeholders," Asif Khan said. He added, "The worst thing that can happen is that some banks and financial institutions may lose some deposits, but the money of course will be in circulation."

"I am not interpreting the news headlines whimsically or pessimistically as each of the government entities will receive their fair return against their funds from the government too.''

"The stock market situation seems a bit diverging from the economic fundamentals now," he added.