Regulators target Dhaka's over-heated bourse
DHAKA: Bangladesh’s stock exchange regulator is seeking to rein in the country’s stock market, which has soared 20 per cent in the past month.
The Dhaka Stock Exchange has been on a record-breaking bull run with the benchmark DGEN index gaining around 1,000 points since the end of December to hit a new high at 5,502.37 points at the end of trading on Tuesday.
The regulator tightened credit rules, reducing the amount banks can give as loans to investors buying shares, as part of its bid to keep a lid on the market’s gains. It also said 62 out of 236 companies listed on the Dhaka Stock Exchange could be bought only for cash, saying the share prices were overheated.
“We have to step in as there is an excess of liquidity. Investors are buying shares without thinking about the fundamental value of the stocks,” said Securities and Exchange Commission executive director Anwarul Kabir Bhuiyan. Speculative trading has pushed capitalisation of the market up by $5 billion in the past month to $32.40 billion, he said. Market capitalisation grew 85 per cent to $27 billion last year.
“We took the measures to send a message to investors: don’t burn yourself, please make prudent decisions and please check the fundamentals of a share before buying,” Bhuiyan said.
But the market shrugged off the warnings and new restrictions, gaining 52 points or nearly one per cent from Monday. Share turnover also hit a record at 16.90 billion taka ($245 million).
Aims fund manager Yawar Sayeed said the market was witnessing new cash infusions daily. “I don’t think the latest measures will curb investor interest. It’s very overheated and curbing loans alone won’t rein in the market,” Sayeed said. The stock market’s main benchmark index rose by 62 per cent last year. Sayeed said part of the money coming into the stock market was being sent home by non-resident Bangladeshis.
“Last year, Bangladesh received $10.5 billion dollars in remittance and a big chunk of it is being invested in stocks. A slowdown in industry has also prompted some banks to invest in the capital market,” he said.
Although nearly 40 per cent of its population lives on less than a dollar a day, Bangladesh’s share market has made steady gains with its economy posting annual average six per cent growth over the past seven years.