A dismal year for stockmarket

The stockmarket stepped into 2015 high on optimism, thanks to two consecutive years of positive return following the crash in 2010-11. But in reality this year did not yield much.

In general, stocks yielded a 5 percent loss for investors this year in contrast to a 19.2 percent cumulative gain in 2013 and 2014.

As of yesterday, the other indicators too remained in the negative territory. And most importantly, the investors were struggling to keep their confidence on the market.

The market is suffering from a lack of confidence, said Faruq Ahmad Siddiqi, a market analyst and a former chairman of Bangladesh Securities and Exchange Commission.

Between January 1 and December 29, DSEX, the benchmark index of the Dhaka Stock Exchange, declined 6.97 percent to close at 4,596.81 points yesterday. Market capitalisation stood at Tk 313,802 crore, a 4.72 percent fall from the previous year.

The daily turnover, another important gauge, stood at Tk 423 crore on average, down 16.4 percent year-on-year.

The index was hovering around the 4,500-point mark mainly for a lack of institutional investor participation.

“The institutional investors were probably thinking that there were no possibilities to make a profit.”

The merchant banks' and the stockbrokers' equity are still in the negative territory, while the banks were not able to increase their exposure to the stockmarket due to regulatory requirements.

Although the issue of banks' capital market exposure was solved recently, it still does not guarantee fresh investments from them, Siddiqi said.

“The investors will not come to the market until there is profit.”

He also blamed the dearth of quality initial public offerings as another reason for the low investor confidence. The investors even incurred losses from the IPOs, he said.

During the year, 12 new securities were listed on the DSE, which raised about Tk 675 crore. With the inclusion of the new securities, the total number of listed securities on the DSE stood at 559.

“We need big and reputed companies to be listed on the market,” he said, adding that the share price of the companies that are listed now are not undervalued even amid the downward trend.

Kh Asadul Islam, managing director of Alliance Capital Asset Management, said: “Many investors who were hoping to mitigate the previous losses jumped on to the newly listed securities that unfortunately had the effect of severely distorting the secondary market against good, fundamentally sound securities.”

Regardless, it is reasonable to expect that interest in the Bangladesh capital market will increase in 2016, as it presents an attractive case for foreign investors by way of its low correlation with the developed markets, its recent trends and low foreign ownership.

Since the market does not closely track the real economy, the current macro challenges, such as the gas and power shortages, are not a great cause for worry.

A discount on valuation multiples aided by an attractive 5 percent yield could make a case for a re-rating, where political stability could be a key trigger, Islam added.

Md Ashaduzaman Riadh, strategic portfolio manager of LankaBangla Securities, said 2015 was ominous for stock investors due to unprecedented levels of political uproar at the beginning of the year.

As a result, sentiment of both the domestic and foreign investors was severely dented and it continued in the later half of the year.

Corporate profitably was badly affected and commodity price decline, lower inflation, downward interest rate, and stable currency could not cheer up the depressed sentiment of investors toward equities, he said.

Despite the favourable macroeconomic outlook, Riadh is not expecting a buoyant 2016 for the stockmarket. He said the extreme dearth of quality liquid stocks is the main challenge for 2016.

Still, the quality stocks that benefit from low commodity price and rising disposable income will offer excess returns in 2016, he added.

On the oversight level, the BSEC and the Bangladesh Bank were seen to be strengthened, empowered and independent.

The former regulated the capital market and the latter the money market, thus ensuring the development and smooth operation of both.

The BSEC's main focuses were on modernising the rules and regulations and strengthening the enforcement activities, said its Commissioner Arif Khan.

In line with this, the regulator took actions against the issuer companies, the issue managers and the auditors for their wrongdoings.

The BSEC undertook reforms of the book building process, public issue and mutual fund rules, with a view to bringing transparency and liquidity to the capital market and restoring investor confidence.

“We will continue our efforts in the coming year too,” Khan said, adding that there are plans to set up a separate trading platform for small and medium enterprises, establish a clearing and settlement company and introduce a financial literacy programme.

Enhancing the surveillance and development of the market is a continuous process and the regulator will maintain it in the coming years such that investors get their confidence back, he said.

In a major development, the special tribunal for capital market cases gave its first verdict in August. The tribunal sentenced a man to two years in prison for illegally influencing the stockmarket through blogs and websites.

One month later, the tribunal, which was also dealing with the much-hyped 1996 share market scam, sentenced two directors of a textile company to four years in prison for their involvement in price manipulation.

It is the first verdict in one of the 15 cases filed regarding the scam nearly 20 years ago.

Although a new trading system, replacing the 16-year-old one, was introduced at the end of 2014 to ensure smooth trade, technical breakdowns halted the DSE for three days.

The incidents raised questions over the management's competency in running and maintaining the trading system, which was introduced at a cost of about Tk 35 crore.

In another major development, Wali-ul-Maroof Matin, managing director of Chittagong Stock Exchange, resigned from his post, two years ahead of his tenure's expiry.

Although he firstly mentioned “internal conflict” as the reason behind his resignation, he later cited “personal reason” after withdrawing the first resignation letter.