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A persistent rise in share prices amid the current bull run on the stock market has posed risks to investors, especially the small-scale ones, as rumour-mongers and manipulators could use the situation to make illicit gains, experts said.
Providing unaffordable margin loans by merchant banks and brokerage houses, entry of new and uninformed investors and an unusual rise in share prices of fundamentally weak companies are the other key risk factors, they said.
According to the experts, new and uninformed investors buy shares based on rumours, ignoring fundamental issues of scrips.
Bangladesh Merchant Bankers’ Association president Sayedur Rahman said that investors must purchase shares of a company after collecting proper information about the firm.
The general investors should not take margin loans during the bullish market as it would raise their risk significantly, he said.
The investors should invest considering some basic fundamental indicators, including price-earnings ratio, he said.
After buying a huge amount of shares of a company, unscrupulous investors spread various rumours and create an artificial demand for the company’s shares to attract other investors to buy shares of the company, experts said.
When the share prices reach a certain level, the manipulators start dumping the stocks on the general investors, they said.
Usually the general investors who do not have enough knowledge about the companies’ financials go to the asset managers of mutual funds to invest on behalf of them, but asset managers in the country are not skilled, they said.
In a bullish market, demand for taking margin loans rises sharply.
When the market faces corrections, the investors with huge margin loans would suffer forced sales as per regulations.
The current stock market rally has started since July 2020.
The key index of Dhaka Stock Exchange, DSEX, soared by 3,063 points, or 76.8 per cent, in between June 30, 2020 to September 9, 2021, in an unprecedented bull run on the country’s capital market.
The market had suffered a bubble-bust in 2010-11 and a huge number of investors, mostly small-scale ones, had lost their money in the debacle.
In recent months, investors found the capital market lucrative for making money as investment options were limited by the Covid outbreak in the country, market operators said.
The market has been rising for the last five months due to a host of reasons, including excess liquidity in the banking system, resulting low deposit rates and fewer investment options amid the Covid outbreak.
Share market analyst and United International University professor Mohammad Musa told New Age, ‘After observing the activities of the current commission, it appears that the commission wants to raise the index further.’
‘The regulator should not predict and express their intension about the market movement. The market should move on its own,’ he said.
Musa said that there was a lack of supply of good companies in the market, which could be a barrier to addressing a high demand for shares on the market, he said.
The surge has not come on the back of fundamentally strong companies, which has become a concern of sustainability of the rally, he said.
Apart from some largest capitalised companies, the bank sector has a little contribution to the current bull run on the market.
Many non-performing and fundamentally weak companies soared astronomically in the current rally.
Insurance sector companies were the centrepiece of the bullish market as out of the 51 insurance companies, share prices of 50 companies are trading over Tk 40 a share.
Dearth of floating shares helped unscrupulous investors manipulate shares of many companies, including insurance ones, market operators said.
Many of the insurance companies are weak and are struggling to survive, they said.
For example, share prices of Pioneer Insurance rose from Tk 59.3 each to Tk 143.9 each, Provati Insurance Tk 29.4 each to Tk 176.1 each, Standard Insurance Tk 40 each to Tk 98 each and Asian Insurance Tk 32.5 each to Tk 98.5 each in the last 12 months.
Share prices of Bangladesh Monospool Paper Manufacturing Co soared from Tk 55 each to Tk 206.8 each, Tamijuddin Textile Mills from Tk 13.2 each to Tk 138 each, Paper Processing & Packaging from Tk 17.6 to Tk 219.8 each during June13 to September 5.
The Bangladesh Securities and Exchange Commission has formed several committees to find out the reasons for the unusual surge in fundamentally weak companies.
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