Junk stocks outshining the rest of late. And possibly for good reason
It seems the junk stock are walking all over the market in the last few days: the index was going whichever direction they were heading.
Take the case of yesterday, when DSEX, the benchmark index of Dhaka Stock Exchange, rose after two days and only three companies on the list of top 10 gainers was from the A category, with the rest hailing from either the Z or N category.
Express Insurance, a newly listed company known on the bourses as N category stock, topped the list rising by a whopping 50 per cent to Tk 22.
On the other hand, Jute Spinners, one of the junk stocks termed as Z category shares, soared 10 per cent. The companies that fail to declare dividends, hold an annual general meeting or keep their factories up and running fall in the Z category, while the A category is almost the opposite.
"Whatever direction the index moves, we have been witnessing for the last few days that the junk stocks make their way towards the top gainers' list," said a senior official of a merchant bank, asking not to be named.
The junk shares have been on an upward curve since the stock market regulator took some initiatives to bring reforms to these companies, he added.
The regulator dictated that the companies that have been in the Z category for the last two years would have to reconstitute their existing board of directors.
If they fail to do so, the sponsors and directors will not be able to remain in the board of these companies or any other listed firms, according to a decision of the Bangladesh Securities and Exchange Commission. The regulator will appoint special auditors and observers to ensure compliance and good governance in the companies.
BSEC also decided that the time for trading settlements for the companies in the Z category would be reduced to four days instead of 10.
Such decisions of the regulator might have created a positive impact on investor confidence, said a stockbroker.
But BSEC should remain alert to see whether gamblers were on the prowl to cash in on the developments, he said.
Turnover, an important indicator of the stock market, increased slightly yesterday from the previous day, in keeping with the trend of the index, which rose 19 points or 0.40 per cent to close at 4,781.57.
But yesterday's turnover was still lower than the upward trend witnessed earlier this month.
It rose 7.8 per cent to Tk 786 crore, in contrast to the Tk 1,000 crore logged in on average in the first half of August.
The pharmaceutical sector pulled off the highest turnover.
Meanwhile, the telecommunication sector gained the most, rising 4.28 per cent, thanks to the continuous increase in the price of leading telecom company Grameenphone.
Among major sectors, telecom, cement and life insurance experienced price appreciation while general insurance, non-banks and real estate faced the highest price correction.
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