Stocks keep bleeding, retail investors continue protests

Dhaka stocks keep bleeding amid a clear absence of rescuing forces capable of absorbing the gradually intensifying selling pressures from leveraged accounts or panicked investors.

Following the sharpest 149 points fall since March 2020 on Sunday, the Dhaka Stock Exchange's (DSE) broad-based index DSEX on Monday (28 October) dropped further by 66 points, or 1.3%, to 4,898, marking its lowest level since 1 December 2020.

Amid the increasing downward momentum, unnerved retail investors continued their protests for supportive measures by the securities regulator and the government. Some also reiterated their demand for the resignation of the new regulatory chief, citing "his failure" to protect their capital.

In the past one month, the major index fell by 760 points, or 13.4%, with only five sessions of temporary halts during the steep decline. Meanwhile, Tk42,000 crore in market capitalisation was eroded.

Analysts attributed this downturn to three main factors – rising interest rates amid high inflation, stressed corporate profitability, and an intensifying panic among investors.

"In an inflationary cycle, rising interest rates hurt the stock market in two ways," said Chartered Financial Analyst Kazi Monirul Islam, secretary of CFA Society Bangladesh.

"Inflation harms businesses' sales and profits, and investors tend to favour fixed-income instruments for secure returns rather than taking risks with volatile equity shares," added Islam, who is the CEO of Shanta Asset Management.

Investors are currently receiving over a 12% guaranteed annual return from Treasury bonds. Despite the downturn pushing the stock market to undervalued levels, with many stocks trading below their fair price, investors are panicking about further capital erosion, said Kazi Monirul Islam.

Md Riyad Matin, first vice president of the Bangladesh Merchant Bankers Association, said, "Economic factors alone do not drive the stock market; behavioural aspects also influence prices."

The Bangladesh Securities and Exchange Commission (BSEC), following the leadership change in August, took bold and significant steps to ensure good governance in the capital market, including penalising wrongdoers and promoting compliant market activities, he said.

But these actions have created panic among major investors who might have otherwise acted as buyers during the downturn but are now remaining cautious, he added.

Riyad Matin noted that the average dividend yield from Bangladeshi listed companies this year stands at 4%, higher than those in Australia, the UK, France, China, Japan, South Korea, the USA, and India.

"At this point, the regulator should concentrate on boosting investors' confidence to support the secondary market; the cleansing drive can be pursued later," he stated. "It's unhealthy for the market when all companies, regardless of their intrinsic value, experience simultaneous declines in dividend payouts."

Investors' protests continue 

Retail investors, who had previously left the streets after the government rejected their demand for the resignation of new BSEC chairman Khondoker Rashed Maqsood, returned to protest on Sunday as the DSEX index fell sharply below the psychological threshold of 5,000.

On Monday, soldiers from the Bangladesh Army were seen guarding the BSEC office in Agargaon, Dhaka.

Retail investors, under the banners of two different forums – the Bangladesh Capital Market Investors Association and the Bangladesh Pujibazar Biniogkari Oikko Parishad – held a peaceful demonstration in the form of a human chain in Motijheel for the second consecutive day. They criticised the "indifference of the regulator" during the erosion of investors' capital and called for an end to forced selling from leveraged accounts.

Mizan Ur Rashid Chowdhury, president of the Parishad, said investors' capital has been more than halved and that forced selling is wiping them out. "The market seems to be running without any guardian; we want the BSEC chairman's resignation," he said.

When an investor borrows from a broker or merchant bank to purchase more stocks, the lenders have the right to sell off securities during a downturn to protect their investments. Popular orders to stop forced selling in 2011 created a negative legacy of negative equity, referring to investors' liabilities to lenders. Market experts have long warned against such artificial protections.

Nurul Islam Manik, coordinator of the Bangladesh Capital Market Investors Association, told The Business Standard that in peer countries, the finance ministry and state-owned financial institutions intervene to rescue the market when stocks are undervalued.

"This is completely absent here, and more investors are going penniless every morning. We will continue our protest through a human chain tomorrow, demanding the resignation of the BSEC chairman."

BSEC urges patience 

BSEC Executive Director and Spokesperson Rezaul Karim urged investors to exercise patience.

"Stock prices have fallen to significant lows, which should attract savvy investors and facilitate a market turnaround," he told TBS on Monday afternoon. "Additionally, the regulator's simultaneous initiatives should help boost investors' confidence," he added.

Karim highlighted several key actions, including improvements in governance, ongoing advocacy for fund injections through the Investment Corporation of Bangladesh, the reduction of high capital gains tax burdens for wealthy individuals, the introduction of a share repurchase scheme by listed companies, and a comprehensive stakeholder consultation program aimed at major reforms in the capital market.

He also mentioned that a committee formed on Sunday is working to identify the reasons for the market downturn and will present recommendations within ten working days to address the situation.