Policy swerves impact investor confidence | The Daily Star
12:00 AM, April 09, 2021 / LAST MODIFIED: 06:04 AM, April 09, 2021

Policy swerves impact investor confidence

Analysts say as stocks witness mixed week

Stocks were mixed last week as several policy decisions impacted investor confidence amid the ongoing coronavirus pandemic.

The DSEX, the benchmark index of the Dhaka Stock Exchange (DSE), started last week with a massive fall of 182 points due to the investors' reaction to the announcement of a strict seven-day restriction.

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The decline was short-lived.

The about-face came after the Bangladesh Securities and Exchange Commission (BSEC) extended loan facilities to stock investors to buy shares and quashed fears of a market shutdown during the lockdown-like period.

Subsequently, the key index started to rise from Monday and has since surged by 249 points. However, the index dropped 82 points on the last trading session of the week after the market regulator lifted the floor price for 66 companies.

"We need to realise how these policies impacted the market. Did the policies come at the right time, or are our investors just behaving smartly?" said a market analyst.

The benchmark index had been on a falling trend in the past month after Covid-19 infections began to rise. Investors feared that the economy would be impacted again as a result, and so, the index was slowly eroding.

The BSEC has allowed loans of up to Tk 80 for investors looking to invest Tk 100.

Earlier, stockbrokers and merchant bankers were allowed to provide loans of Tk 50 against the same amount.

The regulator's decision had a positive impact on investors as they got a chance to buy shares at comparatively lower prices.

"But who can say that the market will not fall further when Covid-19 infections and deaths are rising day by day?" the analyst questioned.

In this perspective, loan-based investment cannot be a good option, he said. 

"The stock market should be savings-based. Otherwise, it could be a major cause for concern if the market falls again."

When investors invest through loans, and the market falls, then they get badly impacted. The best example of this was the market crash of 2010 when those who invested by taking loans were hurt the most.

Another big decision from the regulator in the last week was to exempt 66 companies from the restriction of floor price.

Last year, the BSEC set the floor prices to stop the freefall of the index during the pandemic.

The floor price is an artificial price that is not expected in a competitive economy, and so, imposing such a mechanism was a wrong move.

At the same time, the timing of the removal of the floor price was also not right as it could have been lifted earlier when the index was over 5,500 points.

As the pandemic situation is deteriorating, investors are already in a panic, and such a decision only fuels their worries.

"Our investors need to realise that artificial pricing cannot make their pockets healthy and only leads to an overvalued portfolio," the analyst said.

"Whenever the market is on a downward trend, it should not be forcibly stopped."

"This is because such interventions slow the market for a long time. Otherwise, when the market reaches bottom levels, funds would come to the market automatically."

This is evident in the developed nations. Bangladesh lags behind in this regard because it does not believe in a pure market economy.

However, a positive aspect of the decision was the way floor prices will be removed.

In the first phase, 66 companies have their floor prices removed, while more will follow during the second phase.

Prof Abu Ahmed, a stock market analyst, said that floor prices go against the market economy, and therefore, the practice should not be continued.

"Although it could have been lifted earlier when the market index peaked, the decision to do so now is okay," he added.

Many well-performing stocks remain low-priced, and so, investors could look into them rather than come for gambling.

And although the coronavirus pandemic continues to ravage economies the world over, stock markets are not plunging to dangerous levels.

"Investors should see the economic growth of the country," Ahmed said.

"Our economy still has a potential to grow at over 5 per cent. The listed companies' profit may be impacted, but it would not hit rock-bottom," he added.

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