Stocks on scary ride
The stock market rides a thermal upward and continues its record-breaking trends both in the key index and turnover, with experts warning the sustainability is questionable without supply of new securities.
The market is expected to see price corrections.
The market is also floating on a tsunami of liquidity that has engendered a huge demand for securities and so share prices are getting overvalued.
The overall market P/E (price earning) is increasing gradually that indicates that the investment is getting more risky. At the end of December 2009, the overall market P/E stood at Tk 25.65, which was Tk 18.42 a year earlier.
The benchmark index of Dhaka Stock Exchange crossed 5,000 points last week and reached 5,156 points yesterday, while the single-day turnover hit a new record at Tk 1,452 crore.
Grameenphone's listing is a big factor for the recent upward trend, as the telecom company has alone added around 1,000 points so far to the key index, which was counted wrongly, they said. If each Grameenphone share falls or goes up by Tk 1 on a single day, the index will decline or increase by 4 points, said an analysis by a merchant bank.
The experts said supply constraint is one of the major problems, while rumour and the investors' lack of adequate knowledge about company fundamentals are the other concerns.
“Although figures tell a little, upward trend in an unabated way may not be sustained and the market may face a big correction or downfall,” said Salahuddin Ahmed Khan, professor of finance at Dhaka University.
He said the concern is that the market did not get any significant new issues after listing of Grameenphone. “If there are no new issues, prices of existing securities go high.” But the rising trend may not last long, as company earnings hardly match the investors' speculation, and so the market witnesses a big correction leading to a heavy downfall, he said.
Arif Khan, deputy managing director IDLC Finance, said the index would not have crossed the 5,000 level, if it had been counted rightly during Grameenphone listing.
He said new investors are entering the market everyday and they usually follow the trends, which is also a reason for the uptick.
However, the regulator says it is strictly monitoring the market behaviour. “If necessary, appropriate measures will be taken,” said Ziaul Haque Khondker, chairman of Securities and Exchange Commission.