Stocks on abnormal rebound

Reversing the trend of the last few days, Dhaka stockmarket yesterday clocked a record 15 percent gain.

The general index of Dhaka Stock Exchange (DSE) stood at 7,512 points at the close of the day's trading, recouping 1,012 of 1,235 points it lost on the previous two days.

On Monday, the country's premier bourse suffered the steepest plunge in its 55-year history, prompting the regulator to suspend trading less than an hour after the start of transactions.

Of the 243 issues traded yesterday, 195 hit the upper band in their prices and touched the circuit breaker, which does not allow price of a stock to go up or down by a certain limit for the day.

The sprint left 80 percent of the traded securities without sellers for hours.

Experts see the turnaround as a result of "life support" given by the government and the regulators after the stock index slumped by 660 points on Monday.

In an effort to bring back confidence in the investors, Bangladesh Bank and Securities and Exchange Commission (SEC) that day relaxed or reversed some of their decisions.

In addition, the SEC yesterday withdrew the restrictions on mutual funds' exposure to the stockmarket. The mutual funds can now buy a single company's stock or invest in a particular sector without limits.

Previously, they could not buy over 10 percent of a single company's stock or own over 25 percent of a particular sector.

Institutional investors, particularly the commercial banks, are believed to have put buy-pressure on the market, BRAC-EPL, an investment firm, said in its routine analysis.

Retail investors soon followed suit though there were not enough sellers. The unusually high buy-pressure pushed the index extremely higher early in the morning and kept it at that level for most of the day, it added.

Due to the stalemate in the buy-sell, the single turnover was very low -- only Tk 977 crore.

Experts, however, have doubts over sustainability of the market.

"It seems the market has bounced back with an artificial life support, and the rise is not sustainable," said Mirza Azizul Islam, former finance adviser to caretaker government and former SEC chairman.

Salahuddin Ahmed Khan, professor of finance at Dhaka University, said such jump in the index is undesirable.

"It shows the investors are still not mindful of the market and the reality," said Salahuddin, who had also served as DSE's chief executive officer for five years.

An asset manager, who did not want to be named, said the regulators are injecting life elixir into the market to calm the nervous investors who had gone into a panic sale.

But that does not mean the market should go through the roof on a single day, he added. “Both abnormal rise and fall are not good for the market."

Other insiders, however, said the leap was expected following the regulatory steps. "Obviously, the investors will want the prices of the shares they hold to go to the level at which they bought those," said one.

"Why will they sell the shares before that?" he asked.

Meanwhile, investors demonstrated outside different merchant banks and offices of institutional stockbrokers, as they could not get credit for share purchase at 1:2 ratio determined by the regulator.

Trading at Al-Arafah Islami Bank and IDLC Securities remained suspended for some time because of the agitation. Mercantile Bank and Prime Bank too saw demonstrations.

The houses told the aggrieved investors that they did not have the capacity to provide loan at 1:2 ratio.

Later, many banks and institutional stockbrokers agreed to give loan at a higher ratio though not at 1:2.