Govt again miskicks on the stock market
There is a Spanish proverb that goes along the lines of pouring water on a drowned mouse, which means putting in more resources into a losing battle.
At a time when stocks around the world are tumbling on coronavirus fears, the finance minister's move to summon all bank chiefs on Monday to his office to instruct them to take up on the Bangladesh Bank package for lenders with the view to propping up the ailing stock market -- felt something along the lines of the Spanish proverb.
Was it a wise move? Will it create more burden on the banking system that is already drowning under heaving default loans?
On February 10, the central bank announced a package for banks, allowing them each to set up funds worth Tk 200 crore by taking the funds from the central bank through repurchase agreements against 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.
So far, only nine banks have formed the special fund, in what can be construed as reluctance amongst banks in taking up this voluntary scheme.
This raises the question: why are banks reluctant?
Had they deemed investment in the market profitable, they would have done it out of their own volition, which we saw in 2009 -- when they invested even by violating the rules of their maximum scope of investment.
A number of bankers told the correspondent yesterday that a shortage of liquidity is not the only reason for the indisposition.
Moreover, most of the banks realise that gambling is rampant in Bangladesh's bourse, so junk stocks become hot cakes out of the blue while well-performing companies are on the slide.
Some companies soar abnormally without any reason. Only a few are punished for the manipulation.
There is a huge lack of good governance among listed companies -- and giving their shareholders heathy returns is lower down their list of priorities.
Many companies came to the stock market in the last one decade through initial public offering. But within a few years, they turned into junk stocks. Not just that, most of them showed lower earnings soon after listing.
These, along with a few other reasons, dented investors' confidence in the market -- badly. Which is why, the Dhaka bourse has been on the slide for a good six months now.
Amid this fraught situation came the blow of coronavirus, which has left most stock market investors, not just in Bangladesh but all around the world, in a state of panic.
Since March 8, when the Institute of Epidemiology Disease Control And Research, the sole testing agency for coronavirus, announced three people have been tested positive for COVID-19, in the country's maiden cases, the index shed 612 points, or 13.95 per cent.
During the time, about Tk 37,853 crore, or 11.24 per cent, have been wiped off the Dhaka Stock Exchange.
In the last one month, American Dow Jones plunged 31.3 per cent, S&P 500 index 29.4 per cent, European Euro Stoxx 50 36.7 per cent, Germany's DAX index 37.3 per cent, Spain's IBEX 35 37.8 per cent and Japan's Nikkei 225 index 27.8 per cent.
So, if the coronavirus epidemic tears through Bangladesh like in many countries around the world, the country's bourse cannot up against the tide.
Then, who will take the responsibility for the banks' losses if they invest in stocks by heeding the orders if the BB and finance ministry?
With the impact of the recent bear run, many well-performing companies' stocks crashed to a 4- or 5-year-low.
So, some of the institutional investors might be tempted to snap up those companies' stocks.
But that's not a surety as the overriding problem of the stock market, which is a crying lack of good governance is still missing.
So, the government can take this opportunity to truly fix the stock market instead of some stopgap measures, which come across as putting a Band-Aid on a bullet wound.
For a start, the government can bring in companies with robust corporate governance to the market. Already the government has taken some initiatives to bring some state-run companies.
This is a good move. But they should bring the well performing state-run companies, so that the investors' confidence gets a boost.
On the other hand, the government should create an environment such that well-performing big companies are tempted to get listed.
Such initiatives will boost stock investors' confidence and then they will channel funds to the stock market.
Nothing else will work.
The BB package came after a host of frills the government had provided for the bourse failed.
The Dhaka stocks has been on the downtrend for a while now. To halt the free fall, the central bank also provided a revolving fund to the Investment Corporation of Bangladesh to invest in the stock market.
It redefined banks' exposure definition to increase their investment capacity.
When those failed did the BB bring in the big guns. But that move is also primed to be a non-success.
So, the government should focus on the right space and it should realise liquidity is not the only reason for the slide.
Otherwise, it will continue to keep on giving incentives and the market will keep on bleeding.
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