In a recent press briefing DBA (DSE Brokers Association) president observed that some responsible persons had made some comments that adversely affected the share market. He added that the fall of profit of the state-owned enterprises (SoEs) due to regulatory decisions has left a negative impact on the stock exchange.

 There are valid reasons both in favour and against the aforesaid comments. There are certain issues that need to be discussed in this connection. The decision of reducing the distribution charge of Titas Gas was kept hidden from the investors although the company is listed with the stock exchange. This is undoubtedly a clear violation of listed rules which was not expected from such a responsible state-owned enterprise like Titas Gas. A stock exchange always  falls victim of the domino effect. So, the decline in the price of Titas Gas has adversely affected the entire sector. Titas may have an argument that it has acted as per instructions of Bangladesh Energy Regulatory Commission (BERC). Firstly, BERC should have consulted agencies like BSEC and the bourse keeping the greater interest of the general investors in mind. The problem with this kind of the authority is that it is manned either by the civil bureaucrats with no proper knowledge or by politically chosen people. Even if the BERC makes any arbitrarily decision, the investors and others concerned should be informed well ahead. 

According to DBA, on August 30, 2015 DSE's market capitalisation was Tk 189.5 billion which stood at Tk 135.13 billion on February 02, 2016. Within this period, DSE lost Tk 54.13 billion of its market capitalisation. Now the question arises — if it is loss at all, it has been incurred by the investors. DSE itself does not do any trading. It provides the floor for trading of the share and securities by the buyers and sellers. By any definition, stock exchange is a market place. Secondly, what does market capitalisation stand for? Market capitalisation is the sum total of market prices of all listed securities of a stock exchange on a particular day. It is not static but constantly shifting. Even a change of a very small number of shares of a big company may push market capitalisation either way. Moreover, it has no intrinsic value. 

So, the message that the stock exchange has incurred such huge amount of market capitalisation sends a wrong signal and creates panic among the investors in particular and the public in general. Had market capitalisation been cashable, the global financial crisis could have been easily overcome. In fact, market capitalisation simply indicates the price movement of shares of bourse and nothing more. There cannot be any cut-out date for calculation of market capitalisation. 

In the same briefing, it was alleged that the chief of 2010 stock market debacle probe body in an interview had commented that the lack of confidence was the main problem of the market and the chairman of SEC should be changed. This comment was unwarranted and originated from personal aggrandisement. After the introduction of demutualisation, the bourses have been moving steadily and were stable. There will always be rise and fall of prices in a market. In the stock market, present fluctuation is within the limit of market calculus. Sometimes some media people over blow the issue. Presently, the major foreign exchange earners are the expatriate Bangladeshis. Industrial growth is modest, public issues of share are rare, so there has not been significant horizontal growth of the market. The country's economy is good but not excellent. Thus the observation of 'lack of confidence' is not acceptable.

 Bangladesh Securities and Exchange Commission (BSEC) is a corporate body. If the commission itself does something wrong, it can definitely be criticised and asked for amendment. The whole matter should be looked from a positive angle and the demand for removal of any individual sounds political. 

The question of speculative market also came up in the briefing. In fact, speculators have been creating havoc in the market for long. In the great crash of Wall Street in 1929, speculators played such devilish roles that the U.S President Hoover mentioned of speculation as 'far worse than murder for which men should be reviled and punished'. But still the speculation is the indispensable part of a stock market. It will have to be there. In the most revered book for share market investment, the Intelligent Investor, Benjamin Graham stated that an investment operation is one which upon thorough analysis promises safety of the principal and a satisfactory return. Operations not meeting these requirements are speculative. Moreover, in any kind of business the greed syndrome arises for earning profit. So, in his famous book The Great Crash 1929, the US diplomat and economist Galbraith said, 'No one was responsible for the great Wall Street crash. No one engineered the speculation that preceded it. Both were the products of the free choice and decision of thousands of individuals. The latter were impelled by the seminal lunacy which has always seized people who are seized in turn with the notion that they become very rich. There were many Wall Streeters who helped to foster this insanity'. 

This last line of the above quotation is very important. Innocent and common investors are likely to be tempted to go for wild speculation. It they are allured by the brokers, the situation will definitely be the worst. Some amount of speculation will be there. But that should not be wild but restrained. All knowledgeable people including the brokers should try to tighten the bridle.

While speaking on the probe reports on 1996 and 2010 stock market debacles, the DBA President said that these were not informative. The reports might not be fully comprehensive but definitely some basis is there. The report did no claim to be sacrosanct. It has suggested for further enquiry and actions. So, instead of attempting to ignore the reports all concerned should help in taking further actions and enquires. Definitely, some brokers, sponsors and traders were involved in the crime. If the victims of the scams were sorted out, definitely the general investors would constitute the majority, and the number of brokers or authorised agents would be far less. 

Negative comments adversely affect the stock market, but hyper-positive comments invite disaster. On both the occasions of the share seams, as soon as the market started to rise, a section of 'wise' men through television talk shows and writings began to dance asking for more and more money without the least concern for investment norms and rules. To them, the sky is the limit for price hike. Stock exchange must get rid of these people if it doesn't want to put the innocent investors in a hattrick disaster. 

alam3681@gmail.com

  [Read More]

—–
Source: The Financial Express