Stocks ride on increased liquidity

The Daily Star  January 24, 2021

Major global markets also soaring

Although Bangladesh’s stock market is not connected with global markets and does not follow the usual global trends, nowadays it has been different.

Dhaka stocks are soaring like other major markets which are hovering around all-time highs.

The reason, analysts said, is a global availability of liquidity, including in Bangladesh.

The S&P index of the US now stands at a record 3,841 points while the Dow Jones is also at an all-time high with 30,996.

Similarly, Nasdaq reached a personal best of 13,543 points.

The DSEX, the benchmark index of the DSE, also touched 5,900 points last week and remains in a positive trend. Its all-time high is 6,336 points.

However, the local stock market is practically disconnected from the rest of the world, according to Shahidul Islam, chief executive officer (CEO) of VIPB Asset Management Company.

“So, we can’t say that Bangladesh’s stock market is rising just as the other markets are as there is no such relationship between the two,” he said.

Due to easy access to liquidity worldwide, most major indices have been rising and besides, some other factors influenced the bull run of Bangladesh’s stocks.

“For example, optimism towards the new commission has had a positive impact,” Islam said.

On the other hand, the country’s stock market had been bearish for a long time, so many stocks had turned lucrative, he added.

The Nikkei stock average of Japan is at a high point of 28,631 while neighbouring India’s BSE Sensex is also at a record 48,875.

The UK’s FTSE 100 was at its all-time high of 7,730 in 2018 but then fell due to the Covid-19 outbreak. It is now on the rise again and has jumped to stand at 6,695 as of January 22.

It is the same scenario in Hong Kong, where the Hang Seng index topped 33,154 points in 2018 but now stands at 29,447. But this index is also in a rising trend.

Various markets, including Bangladesh’s, have been rising thanks to the fiscal stimulus which brought down the interest rate, said Ershad Hossain, CEO of City Bank Capital.

“This is very basic,” he added.

Governments are pumping money into their economies in a bid to survive the ongoing crisis.

The interest rate has become almost zero in the US, Hossain said, adding that Bangladesh’s net deposit rate became negative due to a higher inflation rate.

“So, funds are coming to the stock market despite the pandemic and growth stunt,” Hossain said.

The merchant banker also thinks that the new commission’s initiatives to boost investor confidence played a part.

“They have taken many steps and reform activities and are stricter on enforcement,” he added.

The Bangladesh Securities and Exchange Commission (BSEC) ensured that sponsors hold the minimum number of shares in listed companies, a rule not abided by in the last nine years. The market regulator also imposed high amounts of fines on many gamblers.

The new commission also eased the processing of initial public offerings, allowing many companies with good performance records to get listed over the last few months. This includes the trading debut of multinational Robi Axiata.

The BSEC has also taken steps to turn junk stocks to perform well. In this regard, it is working closely with Bangladesh Bank.

The central bank has asked scheduled banks to form a fund of Tk 200 crore to invest in the stock market.

Against this backdrop, the stock market is supposed to go further, Hossain said.

“We saw a downtrend in foreign portfolio investment (FPI) in 2018-19 and a sharp one in 2019-20 mostly due to the Covid pandemic. However, we see some FPI back into select stocks, that is Square Pharma and BATBC, in the last couple of months. We expect this trend to continue in blue chip shares,” said Hossain.

“Our stock market does not usually match the world index but this time it has been following the trend,” a stock broker said.

“Our market usually rises due to speculations in most cases but now, stock investors are now gaining confidence by seeing a well governed market,” he added.

With the appointment of the new commission, confidence grew among investors as the new commission has taken many steps against the gamblers and to stabilise the market in the long run, he said.

This commission is comparatively more strict when it comes to rules and regulations and is penalising players, he added.

“So, many investors are gaining the confidence to invest here,” he said.

If stocks of companies with good performance records come to the market and the regulator remains strict on rules and regulations, then the market will keep going, he added.

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