A banner week for stocks

Low interest on bank deposits has driven savers away from the banking sector and encouraged them to invest in stocks, which is why the market index has been on a rising trend for the last eight days amid an ongoing nationwide lockdown.

The DSEX, the benchmark index of the Dhaka Stock Exchange (DSE), rose 271 points, or 5.24 per cent, over the last eight trading days.

While investors are surprised to see a gaining streak despite the deteriorating Covid-19 situation, analysts are not.

"The market rose for some natural reasons such as low interest in the banking sector, higher corporate earning expectations, recent bear-run of the index, and hope of resolving the pandemic," said Shahidul Islam, chief executive officer (CEO) of the VIPB Asset Management Company.

The expansionary monetary policy in Bangladesh and all over the world has a positive influence on the stock market.

"So, many foreign indices are also in an upward trend and even stay at historical high positions," he added.

The Dow Jones Industrial Average, a US stock market index, rose 0.93 per cent to reach its highest position of 34,137 on April 21.

Similarly, the S&P 500 index is also currently at a historically high position.

"Besides, Bangladesh's market went through a bear-run a couple of weeks ago, prompting people with a high net worth to come forward and invest," Islam said.

Since a number of industries have remained open during the lockdown, investors expected to good corporate earnings in the coming months.

"The vaccine rollout also encourages them to think that the pandemic will soon be wiped out," he added.

Shibly Amran, chief investment officer and head of the portfolio management division at City Bank Capital Resources, echoed the same.

"Most investments go to well performing companies that have the potential to bag high third-quarter earnings," he said.

"So, these companies are rising," Amran added.

Meanwhile, insurance stocks are also rising at a higher rate without any reason, creating risks for general investors.

"There is no logical cause for the surge as their commission's reduction policy has already been reflected in their income," said Khairul Bashar Abu Taher Mohammed, CEO of MTB Capital.

Insurance companies have agreed to pay a maximum 15 per cent commission to their agents since 2019. Most insurers previously offered as much as 60 per cent of the premium as commission to secure business.

Now, the insurance stocks are rising due to gambling, Mohammed said, adding that stocks rise when some people buy shares of small capital-based companies.

When general investors buy these stocks, gamblers wash their hands of them. As a result, general investors incur losses for buying the shares at a high price.

Insurance stocks are rising for the same reason. These are barriers to a sustainable market and so, regulators should work to stop them.

"General investors also need to be cautious because most insurance stocks are now risky," he added.

Among 37 listed general insurance stocks, the price to earnings ratio of 33 are over 15, according to the weekly stock market data compiled by LankaBangla Securities.

When a company's price to earnings ratio crosses 15, then it is normally considered a risky investment.