BB's concern over stocks frightens investors

Stocks suffered a big jolt yesterday after the central bank expressed concern over the bullish momentum in its latest monetary policy statement.

DSEX, the benchmark index of Dhaka Stock Exchange, plunged 117.79 points or 2.09 percent to finish the day at 5,500.85 points.

Effective surveillance is necessary so that the process of recovery from the bearish trend since 2010 remains under the regulator's control, the central bank said.

"Otherwise, investors will seriously be affected like previous times," Bangladesh Bank Governor Fazle Kabir said while announcing the monetary policy for the second half of the fiscal year.

Capital markets are showing increasing buoyancy. After moving sideways in recent years, the DSEX has increased by 23 percent and trading volume three times since November 2016, according to the central bank.

Bangladesh Securities and Exchange Commission has already taken some welcoming steps with cautionary messages, financial literacy promotion, and so forth.

"Imposing restrictions on sponsor shares and securities with high price-earnings ratio may also be necessary," he said.

The central bank has also tightened monitoring to ensure that banks abide by statutory limits on their capital market exposures.

"Bangladesh Bank may also direct banks to prevent diversion of business and consumer loans into stockmarket and remains ready on taking prompt policy action," said Kabir.

Although stockmarket capitalisation in Bangladesh remains modest at around 15 percent of GDP, it can play an important role in financing long-term investments, as long as valuations reflect fundamentals and do not pose financial stability risks, according to the statement.

"To ensure that the capital market can finance long-term investment while exuberance remains rational, banks need to upgrade their surveillance of loan usages," it said. DSE Director Rakibur Rahman said the central bank's concern had a negative impact on the market as well as panicked the investors.

"The way the central bank expressed its concern seemed like an overreaction and premature, as the market did not reach that stage," he said.

The turnover, another important indicator of the market, dropped 10.4 percent from the previous day to Tk 1,137.15 crore, with 31.41 crore shares and mutual fund units changing hands on the DSE.

Of the traded issues on the premier bourse, only 47 advanced, 275 declined and 5 remained unchanged.

Beximco dominated the turnover chart with its transaction of 1.77 crore shares worth Tk 57.53 crore, followed by ACI, Islami Bank, RSRM Steel and Acme Laboratories.

Anlima Yarn Dyeing was the day's best performer, posting a 7.48 percent gain. Shinepukur Ceramics was the worst loser, plunging 9.44 percent.

Chittagong stocks also went down yesterday with the bourse's benchmark index, CSCX, sliding 247.06 points, or 2.34 percent, to close at 10,301.91.

Losers beat gainers as 219 declined and 38 advanced, while six finished unchanged on the Chittagong Stock Exchange. The port city bourse traded 2.47 crore shares and mutual fund units, generating a turnover of Tk 68.07 crore.

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