Research organisation Centre for Policy Dialogue (CPD) yesterday said a game of ‘windfall gain’ is going on in the country’s stockmarket and some people are manipulating the prices.
Irregularities, anomalies, oversight and poor policy framework have led to the bubble market, the private think tank said in its interim analysis on the state of the Bangladesh economy for the current fiscal year.
To show the anomalies and inefficiency of the market, CPD presented some data of the period between July and December of 2010 — the benchmark index of Dhaka Stock Exchange has registered a growth of 34.7 percent, market capitalisation by 29.5 percent and price earning ratio by 26.3 percent.
The overall market capitalisation at the end of December 2010 was as high as 51.5 percent of GDP (gross domestic product), up from 38.5 percent even five months ago.
“This growth is difficult to relate to the growth of the real economy,” said Debapriya Bhattacharya, distinguished fellow of CPD, at a press conference at its office in Dhaka.
Bhattacharya discussed the economy broadly on five indicators — investment, inflation, energy, capital market and remittances. Mustafizur Rahman, executive director of CPD, was also present.
In recent years there is an influx of investors into the stockmarket. The total number of beneficiary owners’ account holders was 3.21 million on December 20 last year, which was 1.25 million in the same month a year ago. This number increased by 154 percent between January and December.
“A large part of these investors have little knowledge about the market and participate in trading as if they are taking part in the Keynesian Beauty Contest,” CPD said in its analysis.
Keynes describes the action of rational agents in a market using an analogy based on a fictional newspaper contest, in which entrants are asked to choose a set of six faces from photographs of women that are the “most beautiful”. Those who pick the most popular face are then eligible for a prize.
CPD identified a number of factors that have swelled the tide of investors. These are opening of brokerage houses at district level (238 brokerage houses of DSE opened 590 branches at 32 districts), arranging ‘share mela (show)’ countrywide and introducing interest-based trading operation.
Easy access to market information also accelerated the flow of investors, it said.
The research organisation also blamed poor capacity of the regulator, Securities and Exchange Commission.
Various market regulating instruments, such as changes in margin loan ratio, application of lock-in period, use of circuit breaker and delisting the companies, applied by the SEC were either inappropriate or inefficient in a number of instances.
“These measures often seemed to be appeasing a section of the vocal or powerful market players,” the CPD said.
Understaffing, lawyers with inadequate competence and no chartered accountant at the SEC are some other examples of its poor capacity.
“Its limited human resources allow SEC to monitor only two brokerage houses in a month,” said the private think tank. “SEC has no surveillance software of its own.”
Also, the analysis disclosed the nature of relationship maintained by the SEC with the finance ministry, which is sometimes erroneous (face value harmonisation issue). The standing committee on the finance ministry in some cases has taken ‘adversarial position’, which has created pressure in the operation of the SEC and the market.
There is also manipulation by a number of bull cartels, it said.
