Pied pipers and stock gloom

Shamsul Huq Zahid

Signs are ominous on the stock market horizon. The bull that roamed in the bourses merrily for the past few months has not paused just for a breather. It might have ended its current run as matter of natural course.

The general index of the Dhaka Stock Exchange (DSE), known as DGEN, after soaring to its highest ever level of 5828 on February 17 last has shed more than 428 points in just 20 days until yesterday (March 09). The blue chip index, DSE-20, shed 268 points during the same period.

What is more disturbing is that the market turnover has declined abruptly over the last few days. The daily turnover at the DSE, which averaged between Tk. 12 billion and 14 billion, has decreased by nearly 50 per cent. This could be the lull before a surge of panic sale, market watchers said. The investors, as for now, are watching warily the movement of the market.

There cannot be an unending uptrend in stock market and correction of stock prices is a natural phenomenon. Intervention by the securities regulator to stabilize the market is also a globally accepted norm.

But allegations have it that the bullish market trend, which turned rather abnormal in recent months, was created more by design in the absence of most essential market monitoring and surveillance by the agencies concerned.

Many had smelt a rat behind the unabated surge in stock prices. But the market mandarins trashed allegations of foul play, claiming market's enough depth and maturity. The securities regulator has remained busy more with use of a handy tool, the margin rules, to contain soaring stock prices despite the fact that the market was abuzz with the news that some behind-the-scene players assuming the role of pied pipers were dictating the market.

The Securities Exchange Commission (SEC) in belated moves has unearthed the networks of some of the pied pipers who have manipulated the market the way they wanted to. Obviously, they have made their fortune. But many others who have danced to the tunes of market manipulators are now at the risk of losing their investments.

The end of the bull-run or major price correction has been overdue. Yet the uptrend in the market might have continued for some more time. But recent actions of the SEC, International Monetary Fund's warning against banks' large-scale investment in stocks and unearthing of the networks of a few market manipulators have together shaken the confidence of the investors.

The general investors by now have understood the fact that prices of many issues have soared for days together not because of their strong fundamentals. Some investors, either individually or in groups, invested a large sum of money and dictated the prices of their chosen stocks. Small investors and even a few institutions investors believed in the rumours spread deliberately and invested their funds accordingly. Some of the general investors have made money and some others are now stuck-up.

An over-heated market is likened to the game of pillow passing. Some people must get caught when the collapse begins.

There was no earthly reason for the market becoming so high. Bangladesh stock market is not like that of India where market goes up and down depending on the entry of and exit of foreign institutional investors. The foreign portfolio investment in Bangladesh being negligible does not have any impact on stock prices.

It is difficult to believe that the DSE management and the SEC could not smell foul play in the market. Even people with limited knowledge about stock market could feel the unnatural stock price movement. Yet some DSE leaders publicly justified the rise of the market and, in the process, lured many more new investors to come to the market.

The securities regulator faces a tough time when market goes over-heated. If it intervenes with a view to cooling off the market, it earns wrath of the investors and stockbrokers. If it does not, it is blamed for not doing enough to protect the investors. Though there is little chance of the market collapsing like that of 1996, some major corrections in stock prices are most likely. It is alleged that the SEC has not done enough to protect the investors from possible losses through market monitoring and surveillance. Rather in some cases, some wrong decisions on the regulator's part exposed investors to financial losses. The granting of permission for offloading of shares by some private companies through direct listing is a case in point. There is nothing wrong with direct listing which encourages companies with strong fundamentals to come to the market. But in a country, where everybody tries to reap maximum profit overnight through fair or foul means, there should be adequate measures in place to stop foul play. In the case of direct listing a number of private companies, unfortunately, there were irregularities.

The government control is seriously undermining the operations of the SEC, which should be independent regulator of the capital market. While granting such independence, an alternative way needs to be devised to ensure its accountability and transparency.