The year 2013 held promises aplenty for the capital market, but the lingering political turmoil hacked most of it down.
It, however, managed to buck the downward trend of the past two years, to end in the black: DSEX, the key index of the Dhaka Stock Exchange, yesterday closed off the year with 4,266 points, meaning a gain of 4.3 percent in the course of the year.
The gain would have been more had there been no political turmoil, which sent investors into a conservative mode.
Average daily trade stood at Tk 400 crore in 2013, down 5 percent from the previous year.
“If the political turmoil continues for a longer time, businesses will be affected – their profits will decline and so will their ability to disburse dividends. This will definitely erode investors' confidence,” said Faruq Ahmad Siddiqi, a market expert and a former chairman of the Bangladesh Securities and Exchange Commission (BSEC).
The primary market would also take a hit, as companies will not come to raise capital, he said. “I see a gloomy year on the horizon if there is no quick solution to the political issues.”
Kh Asadul Islam Ripon, managing director of City Brokerage, said the DSE saw its market capitalisation increase 11 percent in 2013, spearheaded by a general increase in initial public offerings (IPOs). The total market capitalisation is Tk 264,779 crore which is 25.51 percent of the gross domestic product.
“This growth would have been much, much more in volume if there had been some stability on the political front.”
Meanwhile, there were many qualitative changes as well, the most notable of which was the demutualisation of the Dhaka and Chittagong stock exchanges to bring more transparency and accountability to the market following 2011's market crash.
Previously, the twin bourses were collectively owned and run by brokers; demutualisation transformed them from their non-profit, co-operative state into profit-oriented entities.
The stockmarket regulator also enacted five new rules and a guideline for research analysis and private placement of debt securities. It also modified two other rules: the mutual fund rules to regulate the market and the corporate governance guidelines.
Also of note was the fact that there was no intervention to daily trading, which was frequent in previous years.
The BSEC's endeavour to bring in the qualitative changes helped it achieve a higher regulatory status from the International Organisation of Securities Commissions (IOSCO), the association of national securities regulatory agencies. It has been upgraded to an A-category regulatory agency this month, which ensures the regulator's access to international cooperation on securities markets worldwide.
“We have received the international recognition because of our efforts in maintaining global standards,” said Arif Khan, a member of the BSEC, adding that the status upgrade will attract more foreign investors to Bangladesh's securities market.
The surveillance and development of the market, however, will not stop. “It is a continuous process and we will maintain it in the coming years too so that the investors get back their confidence in the market,” Khan added.
Echoing him, Ripon said new collective regulations and reforms from the prime regulatory bodies including the BSEC and the central bank helped develop accountability, transparency and book quality of financial institutions in the country.
“This articulates similar scenarios that had been implied by the regulatory organs in developed economies such as the Federal Reserve of the US, European Central Bank of the EU and Bank of Japan after the global financial crisis in 2008-09.”
Ripon expects the effects of the reforms to be visible in 2014 by way of substantial growth in margins and extensive cleansing of the financial institutions' asset books. “We believe we will witness a considerable upside in the value of the financial sector companies.”
“Transparency, accountability and stability have revitalised the confidence level of investors in the market. As a whole, we believe we will witness a new dimension of investment environment in 2014,” he added.
Md Ashaduzaman Riadh, head of research of LankaBangla Securities, said the business and consumer sentiments were very low in 2013, so was the sentiment of equity investors.
LankaBangla conducted a survey at the beginning of year, where 49 percent of the respondents expressed deep concern about local political instability and ranked it the biggest risk to capital market in 2013.
“Ultimately, the concern has become true and has become the biggest systematic risk for equity investors,” he said, adding that the chronic political instability has started to severely hammer the bottom line of listed companies.
During the year, 15 new securities were listed on the DSE, which raised more than Tk 1,000 crore through initial public offerings. Of the new securities, 14 were equity stocks that raised Tk 833 crore and two mutual funds worth Tk 100 crore each.
With the inclusion of the new securities, the total number of listed securities on the DSE currently is 529.