The stock market in Bangladesh is at a primeval stage of development. The fundamentals are very flimsy and fragile. The Dhaka Stock Exchange (DSE) experienced massive price volatility in November. It saw both sides of the coin within two trading days! Although investing in the stock market is risky, people invested for the future because of their exuberance. As more people invested in the stock market, stock prices began to rise.
Emotions often impact the stock market. When stock prices drop, many investors trade their stock out of fear that the prices will drop further. Others may hold on to stock longer than ideal when prices go up as they hope to strike it rich. These actions caused by emotions impact stock prices. A fall in share prices is nothing unusual in a market that has been bullish over a long period. Market experts also expected a correction in the capital market. But several factors made this expected correction into a bane for investors! But the ongoing volatile situation in our capital market reminds us that we are not capable of exploiting the right opportunities.
The Bangladesh capital market landscape experienced a bubble and bust episode in 1996. During the 1996 bubble episode the benchmark price barometer of DSE, the General Price Index (DGEN), increased by 139.3% during 1991-1995 and stood at 834.7 at the end of 1995. Then the DSE suffered the biggest crash in its 55-year history on December 19. The DSE General Index nosedived by 551 points, or 6.72%, to 7,654 points at the close of a four-hour trading session.
The stock market in Bangladesh is increasingly coming under scrutiny as it is deviating from its core purpose, i.e. raising equity for industrial activities. It is maintained that recent growth in the capital market is difficult to relate with the growth of real economy, rather it is related with inadequate investment opportunities in productive sectors, short-term speculative trading behaviour underpinned by market irregularities and anomalies, weak oversight functions of regulatory bodies, and poor policy framework for the financial sector.
From these perspectives, four key issues may be highlighted in the current state of affairs in the sector. These are: a) lack of investment opportunities in productive sector; b) poor governance in the capital market; c) market manipulation; and d) anomalies in the financial sector.
There are three main areas of influence that move a stock's price up or down.
(1) Fundamentals: The most direct influence on a stock's price is a change in the economic fundamentals of the business. If revenues and profits are on a steep upward trend with no indication of leveling off, you can expect to see the stock price rise as investors bid up this attractive company. On the other hand, if the profit picture is flat or, worse, declining with no change in sight, look for investors to abandon the stock and the price to fall.
(2) Sector Changes: Changes in the stock's sector can have positive or negative effects on price too. Some sectors or industries are cyclical in nature and you should know that it will affect price.
(3) Market Swings: As the market moves up and down, your stock may move with or against it. Most large-cap stocks will follow the market to some degree, but smaller companies may not get the same push every time. In general, a strong market move either up or down will carry more stocks with it than not, so your stock may be up or down for no other reason than that the market was up or down.
However, stock market crashes are momentous financial events that are fascinating to academics and practitioners alike. According to the academic world view markets are efficient, only the revelation of a dramatic piece of information can cause a crash.
Today, our stock market has more or less recovered from the protracted aftershocks of the 1996 and early 2011turmoil.This proves that there is lack of coordination in policy-making and policy implemen-tation. It seems we don't like learning from the past. We had a market crash in 1996, and now we have another one in our hands in 2011.
It important to avoid trading with margin. Invest for the long term and don't trade on rumours. For instance, a definition of the stock market given by Mr. George Soros says: "The financial markets generally are unpredictable, so one has to have different scenarios. The idea that you can actually predict what's going to happen contradicts my way of looking at the market."
To summarise, the stock market is a very significant part of the economy. There is no doubt that the stock market is being affected due to the money market crisis. After a decade, investors have shown their trust in the market, and it is everyone's duty to ensure that the investor trust prevails. Hence, we strongly urge the government and the economic advisor to lend their full support to Security Exchange Commission and the stock exchanges to meet the demands and needs of investors.

The writer is a stock market analyst and a professional trainee at Brac.
E-mail: [email protected]