Stocks battered by political turmoil

The precarious political situation together with the underwhelming dividend announcements by banks, considered a major market mover, yesterday sank the stockmarket to a 13-month low.
DGEN, a key index of Dhaka Stock Exchange (DSE), stood at 3,610 points, the lowest since February 6 last year, when it stood at 3,616. On April 17 last year, the index stood at 5,502 points.
It was the same story over at DSEX, the main index of DSE introduced on January 27 with a base of 2,951.91 points.
The index ended yesterday with 3,458 points, an overnight fall of 3.6 percent.
“The political turmoil is the main reason behind the current behaviour of the stockmarket, as the state of the economy is not particularly bad,” said Mirza Azizul Islam, a former chairman of Bangladesh Securities and Exchange Commission (BSEC).
Political woes deepened following the verdict on Abdul Quader Molla, a senior leader of Jamaat-e-Islami by the war crimes tribunal on February 5.
Between February 5 and yesterday, DSEX lost 17.5 percent.
Opposition parties enforced shutdowns for 21 days this year.
“Given the political environment, naturally, investors are wary of making investments in shares,” said Islam, also a former finance advisor.
“The listed companies cannot perform in this political scene, which, in turn, would cast a negative impact on their earnings and future dividend announcements. I do not see any hope right now unless there is some progress on the political front.”
On the other hand, the banking sector, a vital component of the stockmarket, has not been performing particularly well, either.
Of the 30 listed banks, 16 have so far reported their financial performance for 2012, with 14 announcing lower dividends than last year -- on accounts of reduced profitability.
“Basically, investors do not have the confidence,” added Islam.
Meanwhile, small investors under the banner of Sharemarket Investors' Association took to the streets yesterday demanding government intervention for the purpose of restoring normalcy to the market.
They said the government should appoint a new chairman for BSEC -- for the best interests of the market.
To rectify the situation, Rakibur Rahman, president of DSE, called for urgent initiatives from the finance ministry and the central bank.
“They [finance ministry and Bangladesh Bank] should increase the liquidity flow into the market. While at it, they can persuade institutional investors to invest more.”
He cited the case of banks, which are investing only 3-4 percent of their liabilities, when their limit, imposed by the central bank, is 10 percent of their liabilities.
In 2010, some banks invested up to 33 percent of their liabilities, the DSE president added.
He cited the political turmoil as another problem that has been constantly eating into investors' confidence. Rashid suggested the central bank to extend the timeframe for loan provisioning, together with providing fresh funds at low interest rates.