Policy Research Institute - PRI Bangladesh

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Stocks now reflect their true value: analyst

News Published: Sunday, Apr 28, 2013

SUNDAY, APRIL 28, 2013

Stocks now reflect their true value: analyst


The shares at Dhaka Stock Exchange are now correctly priced and the decline in daily market turnover is consistent with many healthy and stable regional peers, a top expert said yesterday.

“Following a major correction, DSE stocks can now be found to be accurately priced,” said Ahsan H Mansur, executive director of Policy Research Institute (PRI).

“The market volatility measured in terms of movements in the DSE index and the average turnover are still high, but not out of line with market volatilities observed in other places which had gone through similar corrections at the same stage of development.”

Mansur’s observations came while presenting a paper, titled ‘Post-Correction Bangladesh Stockmarket: Market Developments and Policy Issues’, at the fourth PRI quarterly policy briefs on the economy at the think-tank’s office in Dhaka.

Following a bull run that started in the second half of 2009, DGEN, the then benchmark general index of the DSE, reached a peak of 8,919 in December 2010.

Market turnover as a percentage of market capitalisation surged from the very lows of about 19 percent in 2006 to about 114 percent. Market capitalisation also surged from 5.5 percent of gross domestic product in 2005 to upwards of 46 percent of GDP at its peak.

Like all bull runs, the bubble came to an end in late 2010. On Thursday, the DGEN stood at 3,653 and the daily turnover Tk 1,128 million.

Mansur said the government’s efforts to stop the decline in the DSE index did not predictably bring any positive results; the interventions only temporarily pushed the index up.

“The government interventions only delayed the process of market correction, thereby prolonging the agony without any real gain and sizable financial losses for the public sector financial institutions.”

He said foreign portfolio investment has been on the rise, attracted by proper valuations, macroeconomic stability and growth potential of the economy.

“Increasing numbers of initial public offerings are also taking place, as more and more companies are approaching the stockmarket for funding their expansion programmes.”

“We, however, must caution that the recent intensification of political tensions and hostilities may stall or even reverse the gain observed in the period up to January for foreign inflows and up to March 2013 for new IPOs.”

The PRI expert also said the period after the bursting of the bubble is normally the best time to launch carefully thought-out reform programmes.

“The reform agenda has largely been identified, but the central issue is being able to implement it without further delay.”

Rehman Sobhan, chairman of Centre for Policy Dialogue, who presided over the programme, said most of the investments in the country’s stock markets are speculative. “So, one should accept the loss in the same manner as he or she accepts profit.”

Every time any new IPO hits the market, over-subscription by 10 to 20 times occurs.
“But, it does not bother anybody — the government or the financial analysts.”

Sobhan said the country and the industries need investment and there are millions of people who are ready to inject the investment.

“People are there, ready to invest. How come we can’t create enough assets for their money to be invested?”

Yawer Sayeed, managing director of AIMS of Bangladesh, said there are enough rules to regulate the stockmarket; all that is needed is a strong willpower to implement them.

The stockmarket analyst also said that most of the day’s trade occurs in last half an hour of the four-hour trading session, which suggests “someone somewhere is trying to manipulate the price”.