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Stock market analysts have questioned the market intervention of the Bangladesh Securities and Exchange Commission (BSEC) to stop the freefall of stocks as the decline is not unique to Bangladesh as markets are bleeding across the country due to tensions over the Russian-Ukraine war, runaway oil prices and surging inflation.
Inflation in the United States has risen to a 40-year high, the oil price has been the highest since 2008, global food prices reached an all-time high in February, and the interest rate in the banking sector is also going up. The war between Russia and Ukraine has fanned economic uncertainty.
As a result, the major world markets have been dropping for the past month. But none country has introduced a regulatory measure like Bangladesh’s stock market regulator did on Tuesday.
The BSEC lowered the circuit breaker limit to 2 per cent from 10 per cent in order to curb the freefall of the stocks.
“With the policy decision, the natural market force faced a disruption. This may create a barrier to easy entry and exit process,” said Faruq Ahmad Siddiqi, a former chairman of the BSEC.
This is because if buyers think that a particular stock should fall further, then the sellers will have to wait since the stock is now allowed to decline slowly.
Besides, Bangladesh’s economy is not hugely linked with Russia that the index can drop at the same rate as the global markets, Siddiqi said.
Bilateral trade between Bangladesh and Russia is worth nearly $1 billion while two-way trade with Ukraine amounts to about $350 million.
“But general investors were panicked. Our investors are driven by greed or panic alternatively,” said Siddiqi.
“In principle, I don’t support the policy intervention. The BSEC should not continue it for a long time,” he said, adding that the 2 per cent ceiling is negligible.
He advised investors to gain enough financial knowledge so that they can invest or sell shares rationally.
A merchant banker echoed Siddiqi, saying the stock market in Bangladesh is driven by retail investors and they can’t absorb shocks so the regulator intervenes in the market now and then.
“In a free market, such an intervention is not logical. In Bangladesh, the intervention came very early. If the market falls further what it will do then?” he asked.
Almost all markets globally dropped in the wake of the war, but none is yet to take any policy move to curb the fall.
In the past one month, the Dow Jones Industrial Average, the major index of the US, dropped 8.77 per cent, the S&P 500 fell 9.08 per cent, the German index DAX plunged 12.94 per cent, the FTSE 100 of the UK was down 6.91 per cent, and the Euro Stoxx 50 plummeted 12.34 per cent.
Japan’s Nikkei 225 slid 10.75 per cent, China’s Shanghai index dropped 6.58 per cent, the Hong Kong index Hang Seng tanked 17.24 per cent, and India’s BSE Sensex lost 7.26 per cent.
The DSEX, the benchmark index of the Dhaka Stock Exchange (DSE), dropped 8.87 per cent in the last month.
Regulators in the developed economies intervene in the market in extreme cases and an 8 to 10 per cent fall is not an extreme case, the merchant banker said.
“If you allow the market to fall freely, some investors will enter the market to buy stocks. But, now the buyers can’t fathom how far the index can fall really, so they will be cautious in making investments.”
Foreign investors also want a free float-based market where easy entry and exit is allowed, and they are abhorrent of intervention.
An asset manager says the BSEC’s step came too early as the 8 to 9 per cent fall of the key index in a volatile world economic scenario is not unusual.
“If the market force does not support the rise of the stock market index, no artificial push will help it move higher.”
“Therefore, the BSEC should raise awareness among investors that when the index fall they should not panic. Who can stop them if they panic and incur losses?”
(TDS)
