Dhaka stocks surge, still no crash
barrier By Syed Tashfin
Chowdhury
DHAKA - Money is gurgling back
into the Bangladesh stock markets, driving up
overall share prices by 50% last month. The jump,
encouraged by strong economic growth, comes in the
absence of substantial regulatory changes that
would prevent a repeat of Dhaka's 2010 market
bubble and subsequent collapse.
Foreign
cash is playing its part - the amount jumped 28%
to US$18.8 million in February from a month
earlier, when the $14.4 million invested was
little higher than in December 2011. The pick-up
helped the benchmark Dhaka general stock index
jump 50% in the four weeks to March 3, when it
reached 5,428 points. After giving up some ground
it remains up 34.5% as of March 25.
"The
economy, which has maintained around 6% GDP [gross
domestic product] growth, attracts foreign
investors," Muhammad
Saifuddin, managing
director of IDLC Securities Ltd, told Asia Times
Online. His company, he said, helped asset
management giant Goldman Sachs invest in
Bangladesh recently. Political stability,
improvements in power and infrastructure,
macroeconomic equilibrium and foreign
investor-friendly policies also influenced foreign
investment in the capital market, Saifuddin said.
The economy grew 6.7% in the 12 months to
last June as global demand for exports, mainly
textiles and ready-made garments, picked up. That
was a faster pace than the 6.1% expansion in the
previous 12 months and 5.7% in the period to June
2009.
Given the trend of the past two
years, foreign investment in the capital market is
likely to be higher this year, he said.
Even so, the scale of overseas money
coming into Bangladesh remains relatively small
compared with other countries in the region, such
as India, while a failure to improve regulatory
oversight could remain a disincentive to many
funds wary of a repeat of last year's market
crash.
Share prices declined nearly 50%
between late 2010 and early February, following a
more than 150% rise in the previous year as
markets elsewhere where pummeled by the global
financial crisis. Last year's declines prompted
widespread riots by small investors who were
losing their savings. By February 6 this year, the
Dhaka index had fallen 45%, to a low of 3,616,
since hitting an historic high of 8,918 on
December 5, 2010.
"Total foreign holding
in the Dhaka stock exchange is around 0.5% [of the
market] or even less compared with other emerging
markets of the region," Saifuddin said.
Recent investment data may also be
misleading. Leading portfolio managers in
Bangladesh who provide brokerage services to
foreign funds pointed out that overseas investment
had been rather "slow" in December and January,
magnifying the February data.
Foreign fund
inflows remain barely 20% of what they were last
June, when a recovery, similar to that seen last
month, flared up before reversing in mid-July for
shares to continue their precipitate decline.
February's cash inflows are only about $4
million up from the low of $14 million in
December, which was reached after a steady decline
from $15 million in last September, double the
amount in August 2011 and a high of nearly $69
million in July 2011.
Money from overseas
last year failed to make a profit, buying shares
worth $148.6 million at the Dhaka Stock Exchange,
and selling for $139.3 million. It was a prettier
picture in 2010, during the index run-up, with the
sale value of $214.9 million beating the purchase
value of $131.9 million.
The chance of
significantly more overseas money, particularly
heavyweight foreign funds, being punted on the
hope of another period of prolonged gains looks
small, however, given regulatory doubts, a paucity
of reliable information, and easing of market
restrictions elsewhere, notably in neighboring
India.
Information of a company's trends
and management, "along with qualitative research,
is not available to be provided to foreign
investors in Bangladesh", said Saifuddin. "Foreign
investors will not invest without the proper
information." There are also rigidities that
hinder foreign investors from investing, including
lack of coordination between custodian banks with
clearing houses of stock exchanges."
A
flexible account-opening process and a more
efficient trading infrastructure for foreign fund
managers would encourage more investment of
overseas money, he said, while the government had
decided in principle to implement a guideline for
qualitative research and ways through which such
information could be made available to foreign
investors.
The prevailing information
available to foreign investors is mostly
"distorted", one market watcher conceded. "In most
cases, the profits mentioned are blown-up figures.
But the foreign investors have their own business
analysts who can easily identify such anomalies,"
he said.
More challenging will be to keep
up with India. It has already decided this year to
let qualified foreign investors (QFI) invest
directly in its domestic equity market, to "widen
the class of investors, attract more foreign
funds, reduce market volatility and deepen the
Indian capital market", according to a January 1
statement. Foreign portfolio investments were
previously possible only by foreign institutional
investors (FII) and non-resident Indians.
New Delhi last August allowed foreign
investors to "directly invest up to $13 billion in
equity and debt schemes of mutual funds", not a
bold enough step to prevent more than a net $527
million in FII capital to be taken out of the
Indian market during the year, India Today
reported, citing Securities and Exchange Board of
India data.
A year earlier, net FII
capital inflow was more than $25 billion.
Syed Tashfin Chowdhury is the
Editor of Xtra, the weekend magazine of New Age,
in Bangladesh. (Copyright 2012 Asia Times
Online (Holdings) Ltd. All rights reserved. Please
contact us about sales, syndication and
republishing.)
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