Despite jitters, 2020 was a banner year for stocks | The Daily Star
12:00 AM, January 01, 2021 / LAST MODIFIED: 07:42 PM, January 01, 2021

Despite jitters, 2020 was a banner year for stocks

Despite all the economic uncertainty amid the ongoing coronavirus pandemic, 2020 saw growing investor confidence in the country's stock market, which rose by more than 20 per cent this past year.

DSEX, the benchmark index of the Dhaka Stock Exchange, stood at 4,453 points at the beginning of the year on January 1 while it was 5,402 by the end of December.

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A number of indications influenced the upward trend in investor confidence, such as a change to the market regulator's long-standing leadership and policy support from Bangladesh Bank, according to market analysts.

The year will also be remembered for the abnormal rise of insurance stocks, which almost doubled in value amid the current crisis.

Lower commission for agents increased the sector's earnings while stock rumours and gambling fuelled its meteoric rise, the analysts said.

In an effort to curb the spread of Covid-19, the government enforced a nationwide shutdown of all economic activities between March 26 and May 30.

The country's bourses were also shuttered during this two-month period, which was the longest closure of trading in the country since the liberation war in 1971.

As a result, earnings across almost all sectors dropped by 25 to 30 per cent during the April-June period.

However, the DSEX still managed to hit the 5,400 level by the end of the year.

This happpened because of rising investor confidence alongside certain initiatives taken by the Bangladesh Securities and Exchange Commission (BSEC) under the new leadership of Prof Shibli Rubayat Ul Islam, said Masudur Rahman, a stock investor.

"The market was under-valued so investors invested money despite the earnings fall," he added.

If bond trading in the secondary market begins this year, it would further fuel investor confidence and improve the market depth, the investor said, adding that BSEC should be strict to stop gambling.

Stock gambling was a common problem throughout the year that saw a junk stock like Zeal Bangla Sugar Mills to top the gainers' list with a 392 per cent increase even though the company has given nothing to its investors for the last two decades.

"Insurance companies also have no big news other than the impact of the pandemic so their share price doubling or tripling was only caused by gambling," Rahman said.

Asia Insurance took second place in the gainers' list, increasing by 358 per cent through the year. Meanwhile, Provati Insurance and Asia Pacific Insurance edged up by 210 and 209 per cent respectively.

"Insurers' earnings will be positively impacted with the lower commission regime because it will reduce their costing," said Khairul Bashar Abu Taher Mohammad, CEO of MTB Capital.

In 2012, the Insurance Development and Regulatory Authority (IDRA) issued a circular, barring insurers from paying more than 15 per cent of the premium as commission.

However, most insurers disregarded the directive, prompting the market regulator to issue a notice in late 2019, urging compliance for the sake of the sectors' well-being.

And in a positive development, the insurance companies agreed to follow the order during a meeting of the Bangladesh Insurance Association in 2019.

"But the commission reduction cannot be the cause for doubling their business so the price fluctuation was not grounded," Mohammad added.

Apart from the commission, Md Sayedur Rahman, managing director of EBL Securities, brought some other issues to light, which includes keeping lower vehicle insurance costs.

Earlier, vehicle insurance cost around Tk 500-600 through third party insurance providers but it would now cost about Tk 20,000 due to the insurance regulators' new policy.

"The insurance companies' stock market investment capacity also doubled while the policy changes also boosted their shares," added Rahman, also president of the Bangladesh Merchant Bankers' Association.

Regarding the rise of insurance stocks, Shahidul Islam, CEO of the VIPB Asset Management Company said that they manage around Tk 300 crore from their funds but do not have a single share with any insurance company.

"It shows how we treat the sector," he added.

The fact that companies with poor fundamentals like Zeal Bangla were in the gainers' list throughout the year was not a very good indication and was a result of pure rumour-based speculations.

"Only when people burn their finger do they learn," Islam said, adding that the BSEC could set some governance criteria and financial indicators that a company must follow in order to avoid delisting.

Asked about Covid-19's impact on the stock market, he said the index had dropped to a historic low when the deadly pathogen first began to spread.

"But it rebounded thanks to the expansionary monetary policy and some regulatory changes from the stock market regulator," Islam added.

In July, the central bank brought down the bank rate to 4 per cent from 5 per cent. It also dropped the repurchase agreement rate from 5.25 per cent to 4.75 per cent to make funds available for banks at a cheaper rate.

The BSEC imposed a floor price to deter a further fall of stock prices when the index dropped to 3,603 points in March due to

 pandemic induced slow economy.

A top official of the BSEC preferring anonymity said that it has tried its best to bring back investor confidence so it punished many gamblers at a big amount.

"We have taken the initiative against sponsors also so many of them already fulfilled minimum shareholding criteria, which was not met for the last at least eight years," he said.

The BSEC eased the process to secure an initial public offering as well so that well performing companies did not need to wait long to raise funds.

"But it is still true that certain players are actively gambling so our investigation is ongoing," the BSEC official said.

"Our target is to bring discipline back to the stock market but general investors also need to be cautious about their investment, otherwise they will continue to lose," he added.

The market witnessed turnover of over Tk 1,500 crore in 2020, which is uncommon compared to the last three years.

The turnover rose thanks to increased participation from institutional investors and banks.

As of December 10, banks had invested around Tk 700 crore and committed to invest another Tk 1,350 crore by taking the central bank's incentive.

On February 10, Bangladesh Bank rolled out a package that allows lenders to set up a Tk 200 crore fund by taking it from the central bank through a repurchase agreement against the treasury bills and bonds owned by them.

The banks will have to pay 5 per cent interest for the fund and the credit tenure will be until February 2025. 

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