Just saw the Dhaka Stock Exchange has gone to the Wibley Wobley again. It reminds me of another stock market, but for that everyone will have to know a bit of history. That’s the US stock market back in the 20s. The whole market used to run on rumors. Average people will invest all they had to make a quick money because someone they knew, knew someone who made a million and is now retired. Most of the brokers didn’t even know what was happening. There were printing press printing fake share certificates to give investors and one day the bubble busted and everything was gray again. The Great Depression started and it effected every American for a decade. The story is important not because of the effect but the cause. The 2008 crash was almost similar, but more sophisticated. I think the Dhaka Stock Market story falls somewhere in between.
I make my bread and butter through the investment market. The first thing we believe is the market follows Efficient Market Theory. In short, the whole market knows the same information, no one knows more or less then others and for that the market moves in coherence to react to the information. If the information is positive then it goes high or bullish and if it’s negative then goes down or bearish. In the age of information technology, most emerging market can follow this basic rule to ensure at least a level of transparency. Well at least we can assume the market is moving based on news and data that’s coming out on the companies. Unfortunately, I can’t say the same thing for Dhaka Stock Market. It seems the whole market is based on rumors and spot fixing (those who don’t know, the term is actually from investment market engineering and now used in Cricket!!). Also most of the people I’ve talked to seems give me the impression that some people knows everything about the strings in the market and using it to manipulate others. That’s natural and there will be market makers like that in every market. But the issue is with the puppets on the streets.
These puppets are jumping up and down in joy, when they make money. When the market crashes they go out and vandalize transports in front of Bangladesh Bank. The fundamental question is who are these investors? If it’s an average Joe, who’s investing all his savings then he’s bound to burn his hands. In that case, it’s an issue of lack of consumer awareness. The SEC and DSE should make it clear that in capital market, “higher the risk, higher the return.” You have to have that much financial breathing space that if you loose money, it’s not going to effect your personal finance health immediately. In another word, you have the capability to bear some risk. Also the average investors are not investing based on rumors. If it’s their brokers who are saying this is a good investment, the investors know the right questions to ask; like “Based on what? Where’s the technical analysis?” It really doesn’t require all investors to understand all the technical information, but at least it’s in front of them and they can learn if they have to.
That brings to the second concern. I really don’t think the people who are in the SEC are actually efficient to govern and over look the investment market. To overlook the market they themselves have to have the experience of being a part of the market. If you are experience is with Bangladesh Bank or commercial lending business, I’m sorry to say that’s not what’s required to oversight the capital market. For that, I think they are always a step behind and can’t prevent any of the crash, because it’s almost like a trial and error based governing. Stock market is not a coaching center; neither for the investors nor for regulators. So it’s important to see that the people who are the regulators have adequate real life experience handling the equity market.
Also the trend of commercial banks taking part in investment directly is a big concern. That’s one of the reason why the stock market crash in Europe and USA in 2008-09. Are the banks using the depositors money? What percent and how safe are the investments? Are they declaring to their bank depositors? These are questions the investors need to ask the banks. I’m not sure how the brokerage houses are working but it never looked that convincing to me, when ever I asked about explaining specifics about market segments and companies.
It’s bad for the publicly trading companies too. The crash makes them less credit worthy and the rise of price makes their market capital inflated. For an infant market like Bangladesh, it’s crucial to see that the financial health of our companies are not effected because of this market engineering.
Stock market is all about liquidity. The rise of the DSE shows that average people have money in their pocket and they want a quick and higher return for their money. But that doesn’t mean you are going to invest in uncertainty everything you have saved. That’s total gambling, might as well bet on horses. So the investors need to become a bit matured, too. The market needs better regulators and need to become transparent. That has to be ensured. Otherwise, we will see this phenomenon again and again and people will prefer to keep their money under the mattress 🙂