Investors' confidence in capital market remains subdued: World Bank

Infographics: TBS

Despite several policy changes, investors' confidence in the country's capital market remains subdued, as reported by the World Bank in its "Bangladesh Development Update" released today.

In its report, the World Bank mentioned that the Bangladesh Securities and Exchange Commission (BSEC) withdrew floor prices on equities on 18 January, a move deemed to have alleviated a major market distortion.

Through the floor price, which was imposed in July 2022 to prevent the fall of the stock market, the regulatory body artificially kept the market within a limit for more than one and a half years, said the global lender. But after the floor price restrictions were lifted, the market could no longer be tied, it said.

Rezaul Karim, spokesperson and executive director at the BSEC, told TBS the commission always works with the priority of protecting the interests of investors and increasing their confidence. But investor confidence does not always depend on BSEC and policies, he said.

The BSEC spokesperson also said that the confidence of investors depends a lot on the country's macroeconomic condition. "The commission feels that investors' confidence in the capital market is somewhat low given the current macroeconomic facts. But this distrust will not exist."

According to data from the Dhaka Stock Exchange (DSE), out of the 62 trading days spanning from 1 January to 2 April, the stock market experienced declines on 33 days. Recent market trends suggest that investors are increasingly wary of continuous price falls, with some opting to exit the market altogether. This apprehension has led to a segment of investors selling shares at losses, driven by concerns that prices may decline further.

During the 19 January–2 April period, the benchmark index DSEX of the DSE nosedived by 9.43%, or 598 points, to 5,738, resulting in Tk1.10 lakh crore being wiped out of the country's premier bourse in value. Currently, the market capitalisation stands at Tk6.77 lakh crore.

According to the Central Depository Bangladesh Limited (CDBL), which automatically maintains shares and BO accounts in the stock market, the number of BO accounts with zero share balance on 18 January was 2.98 lakh. The figure rose to 3.53 lakh at the end of the trading session on 2 April.

When the total number of BO accounts in CDBL is 17.87 lakh, 20% of the accounts are inactive.

Due to massive selloffs, the number of BO accounts with a share balance fell by 43,344 to 13.58 lakh.

Many experts and analysts initially perceived the fall as a usual correction after the withdrawal of floor price restrictions. However, the 600-point drop in two months has already shaken them, especially those who were heavily exposed to stocks.

Analysts, adhering to the universal theory that suggests the stock market tends to weaken when interest rates continue to rise, stated that large-cap stocks, particularly those that were stuck at their lower limits for one and a half years despite declining earnings, might have been under some stress until there is a rebound in fund flow and corporate earnings.

A managing director of a brokerage firm, who preferred not to be named, said the market's collective psyche was abnormally affected by excessive manipulation, leading many short-term traders to lose money chasing them at the end of managed rallies. "Clean investors, who prioritise adherence to investment principles, have consequently shied away."

He further explained that investors who entered the market solely chasing lucrative turnover without considering index movement suffered the most. "Many of them were influenced by rumours circulating on social media platforms. However, their expectations of making significant profits were not met, leading to frustration."

Seeing rare market interference like the floor price, regulators suddenly changing their minds in so many things related to market behaviour, and an apparent indemnity to manipulators who act with insiders made impatient investors excessively rumour-seeking as they believed in what they saw, said a senior stock broker.

For instance, the process of coming out of pandemic-time relaxation by sending weaker firms in the Z category has been a chaotic blunder to the investors, as the regulatory officials gave contradictory messages several times alongside acting out of indecisions that even hurt junk lovers' sentiment, said another brokerage official who serves thousands of retails and a few institutional investors.

Brokers' seven points for a better market

The DSE Brokers Association (DBA) held a meeting among the top brokers on 19 March and stated in a press release that they believe the fall is a natural consequence of the withdrawal of floor price restrictions.

They expressed their anticipation that the market should soon take the right course, attracting investors to lucrative stocks at cheaper prices.

They urged policymakers and regulators not to consider any radical market interference, such as reinstating floor price restrictions.

Their major demands, according to the statement quoting DBA President Md Saiful Islam, included listing more of the well-performing companies to increase the supply of quality stocks, strengthening the mutual fund sector, ensuring reforms in the stock categorisation system and margin loan regulations, and ensuring compliance in listing and operating listed firms.