Stockmarket Crash
Govt actions draw doubts
The policymakers demonstrated their lack of seriousness in identifying the real culprits behind the recent stockmarket debacle, by taking 15 days time for forming a probe committee to investigate market manipulation, said analysts yesterday.
They however said the finance minister’s confession of making mistakes, and his meeting with stakeholders sent a signal to the investors that the government is giving due consideration to stabilising the market that slumped until last week and made many of the 33 lakh investors bankrupt.
The stakeholders said withdrawal of circuit breakers on share index and individual stocks is also a good step towards restoring investors’ confidence and stabilising the market.
The announcement of active participation of institutional investors may also help boost investor confidence to some extent, they added.
But a number of issues including quick probe into the allegation of market manipulation, reform of the Securities and Exchange Commission (SEC), and increase in supply of new shares still remain left out.
They observed that it will be unwise to involve the banks in rescuing the market, as too much exposure of banks to the stockmarket may be disastrous for the overall financial sector of the country.
“I don’t get why it needs 15 days to form a probe committee when it can be done instantly. It appears that the government is not that serious about it,” said Mahmood Osman Imam, professor of the department of finance at Dhaka University.
Prof Imam made the comment a day after the government had announced a stimulus to recoup investors’ confidence that slumped as markets plunged 24 percent in two weeks this month.
Analysts said the closure of trading for the last two days gave investors time to think and re-evaluate their positions. This may help ease the panic among the investors at a time when many shares have become attractive for buying.
About the trade suspension by the regulator and meetings between the finance minister and stakeholders, Imam said he expected a package from the government for the capital market.
Meanwhile, the issue of reforming SEC also remains withheld. The finance minister pledged increasing manpower of SEC, bypassing the issue of reforming the commission, which suffers from capacity constraint in different areas including monitoring and surveillance.
“Monitoring and surveillance capacity of both SEC and Bangladesh Bank have to be strengthened so that the regulators can take immediate action when any manipulation is detected,” said Imam.
Mirza Azizul Islam, a former chairman of SEC also a former finance adviser to a caretaker government, however, said the government steps to stabilise the market, and its interest in investigating the allegation of market manipulation might have a positive impact among investors.
“But no direction came regarding addressing the demand-supply imbalance in the market,” he said, “We also did not see any disclosure about bringing twenty six state-owned companies to the market to address the supply-demand gap.”
Abu Ahmed, professor of the department of economics at the University of Dhaka, echoed Mirza Aziz. “But it depends on the behaviour of institutional investors,” said Abu Ahmed, also a market analyst.
He said the decision to withdraw circuit breakers on index is good because it does not reflect the normal market behaviour.
The DU professor, however, said the market has got bigger than what it had been during the 1996 crash, and it will be unwise to judge the present stockmarket based on the 1996 viewpoint.
“The market now involves thirty three lakh investors, and if the investors return home losing their investment, it might cost the government politically,” he said.
According to him, the government should not take so much time to form the probe committee.
“It can be done in three to four days. Early formation of the probe committee will reflect seriousness of the government,” he said, adding that the terms of reference of the probe committee should be wider allowing it to investigate whether there was any capital flight from the country.
“It is important to find out where the money went in the last two to three months, who took the advantages of the loopholes in the system, what were the faults of SEC, and how demands were created in the share market,” he said.
Khondkar Ibrahim Khaled, former deputy governor of Bangladesh Bank, said SEC should be restructured.
He said 15 cases were filed against suspected market manipulators in 1996, but none of those saw any verdict. There are stay orders against all of those.
“Even the lawyer, who took initiative to revive the cases, was removed,” he said.
“Irrespective of governments, a syndicate has been able to control SEC,” he alleged, adding, “The main problem lies here. SEC should control the stockmarket. The market can never be stable if SEC runs on the advices of the syndicate.”
He also warned about involving all banks to rescue the capital market.
“It is not the banks’ job to engage in stockmarket. They may invest a negligible amount. They have to operate within the laws of the central bank,” he said, “Otherwise we will see a banking crisis as we are seeing now in the stockmarket.”
Analysts also said the plan to reinvest profits from banks does not seem enough to support the market. It might lead to a mere one-day bounce back.
“The key for regulators is to reassure all investors — retail, institutional and even foreign — of strong economic fundamentals,” said Ifty Islam, managing partner of Asian Tiger Capital Partners.
“The underlying story is, our economy is strong,” he said.
