Dilemma of Investment: DSE Story

Nayeem Hossain

Nayeem Hossain

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 🙂

DSE

4 Responses to “Dilemma of Investment: DSE Story”

  1. Sazid Khan

    As a student of economics I studied that information is the prerequisite for an efficient market. But in our market we see asymmetric information. Moreover, our capital market is not well functioned as well as our industrialization process. People are impatient. They want to make money over night. I know some investors who do not able to check out the portfolio. Investment based on rumor is nothing but a FARCE!

  2. Mahbubur Rahman

    Mr. Nayeem, Thanks for your criticism with a full of advice! I think it is not necessary to go to 20s US stock market which we had on 1996. I think your investment not with DSE and till now you are getting your bread and butter from the investment market. You know rumors, spot fixing, market engineering, market makers and so on, undoubtedly you are well experienced in this business. But I am sure, if you invested with DSE you would appear as one of the puppets on the streets (as you mentioned). My friend, just think, after 1996 to 2009 there was no investor became puppets, no gambler, SEC & DSE official was doing well, Stock Market was under control. What’s happen suddenly? Also, our honorable finance minister recognized his mistake and promised to take necessary steps to make the market stable. DSE shows that average people have money in their pocket but unable to find out the gamblers! Why almost all shares prices rise/decline at the same time? Maximum investors are from middle class family. They have no money for the gamblers. Gamblers everywhere, do you know about Onion gambling earlier, currently cooking Oil? Even your finger point to the investors, mainly!
    I am sorry to say that your way of judgment really confused me. I read your article “Corruption of the people, by the people, for themselves” and asking you that who is responsible to stop the corruption, the People or the Government? A police, who’s salary is too small or who bought his job, shall we allow/support them to make corruption! Just think deeply that Government has work force from secretariat to village level who is not working properly and making the people bound to enter their corruption boundary. So, try to clean and activate them properly.And pray to Allah for the patriotic politician for the development of the country.

  3. Fareed Zakaria

    The stock market in Bangladesh is in a very primitive phase of evolution.The fundamentals are very weak and fragile. Three categories of people invest in it. Unscrupulous traders, government service holders and and the lower middle class. The latter hardly understands the basics of a stock market. Insider trading is rampant. Unscrupulous traders and government service holders who have earned foreign currency through employment abroad use the DSE by manipulating it. They have reaped huge profits in a short time. Once their bellies got protruded they pulled the plug through connivance and collusion. The average illiterate investor thought that this was a money multiplier without ever realising that its a kind of gambling where millionaires become paupers overnight. They are ignorant of the stock market’s fluctuating bearish and bullish trends.

    This crash is nothing new in Bangladesh. It had happened once before in 1996. The Bangladesh Bank and the SEC should have anticipated the bubble effect long time back and warned the government of the dire consequences. The hyperinflated prices could easily have been prevented by sensible ethical people within the government. But once again the corrupt nexus of operators within the government, the DSE and loan defaulters got the upper hand.

    The FM has appointed a credible banker like Ibrahim Khalid to look into the matter. The records are all there. The culprits must be punished whether he is an MP or a next of kin of a minister or a sympathiser of the opposition party or whoever. We already have heard an MP openly defying the PM and the FM. This same MP along with another MP of the ruling party had the audacity to violate RAJUK restrictions on high rise buildings on Gulshan Avenue.

    Its time that the government pull down these thugs before before they get out of control. No one should be above the rule of law.

    You hardly see any BRTC buses plying the roads of Dhaka in noticeable numbers. By now there should have been a thousand new BRTC buses on the roads to ameliorate the sufferings of the daily public commuters. But somehow the Roads and Highways ministry is sabotaging AL by alienating it from the common people.

    The commerce ministry is a big failure. There’s too much of talking but no action to keep a tight rein on corrupt traders.

    In a country like Bangladesh a home minister should be making errands to every nook and corner of Bangladesh by surprise visiting remote police stations. He or she has to be a dynamic energetic person. Honesty as the only attribute will hardly improve law and order situation.

    The Chatra League and the Jubo League are major embarrassments.

    The PM has good intentions. People expect the AL to behave in a pro-people manner. The PM has three more years to put things in order. The AL is a populist party that must behave responsibly.

    Addressing these four sectors (law & order, commerce, roads and highways and the students wing of AL will reap benefits for the AL in the long run.

    As I heard someone on the street saying, “The opposition hardly has any major issue to agitate against. But its the stupidity and sheer inefficiency of some ministers that’s giving ammos to the opposition to create issues out of the mess created by these thoroughly incompetent sloppy idiots.

  4. Arif Khan

    I do not fully agree. But some of the decisions taken by the government are really stupid. Just three days before the World Cup it asks the home owners around the Mirpur Stadium to paint their houses. Before that the Dhaka Metropolitan Police asked vehicle owners to repair their dents without giving them enough time. These things could have been taken care of at least a year back.

    The unavailability of BRTC buses on public routes is really a mystery. Two years on a thoroughly useless communications minister has failed to put enough buses on the streets of Dhaka to mitigate the sufferings of the common commuters. The CNG three wheelers are also defying BRTA regulations on meter readings (takas/mileage) by manipulating the metrs and bribing traffic polices. Sahara’s Khatun’s incompetence on running the home affairs is also infuriating the people. Why is it that we have to daily witness brokers and gamblers creating carnage in Motijheeeel C/A? It seems that recruits of BNP/Jamaat within the police are sabotaging AL’s image.

    The PM and four or five ministers have performed well. The rest are a drag on AL’s agenda. Thoroughly incompetent and useless.

    The PM must have competent ministers running, home, communications and commerce ministries. They ought to be changed fast before they do more damage to the government.

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