Stocks surge on central bank’s liquidity support

Stocks jumped on Tuesday, riding on the central bank's announcement of providing special support to banks for investing in the ailing capital market.

Indices at both stock exchanges broke the sluggish trail of 12 sessions and jumped to 2 percent with a near 50 percent spike in market turnover. 

The Bangladesh Bank's circular on Monday evening offered each of the scheduled banks the scope to build a special fund of up to Tk200 crore with their own resources or borrowed money from the central bank at 5 percent interest. 

Significantly, all investments from the special fund will be exempted from the banks' capital market exposure calculation till February 2025.  

Thus the central bank has paved the way for a fresh investment of nearly Tk12,000 crore from five dozen banks in the capital market.

Investors and analysts have been busy forecasting the impact of the liquidity measures, and their success widely depends on bank bosses' confidence in the market. 

Now the million dollar question is whether the banks will avail the facility or will stay away from the capital market because of their bitter experience in terms of losses over the last decade. 

Talking to a number of people in the financial services industry, The Business Standard has come to know that the top management at more than five banks has expressed their initial reluctance to avail the offered scheme. 

Interestingly, though, most of them did not deny that they would go through assessment reports and proposals from their market analysis teams in the coming days. 

The skeptics' argument is banks did not dare avail the previously offered short-term funding facilities to invest in stocks last year. Are the same banks going to feel confident about the same market? 

Sayadur Rahman, managing director of EBL Securities Ltd and a director of EBL Investment Ltd – both are capital market subsidiaries of Eastern Bank – said the top management and boards must go through the assessment reports from their expert teams and that will take a few weeks. 

"Before that, debate or speculation is meaningless," he told The Business Standard. 

The market as usual needs time to interpret things. He said, "I am happy to see the indices going up today (Tuesday). In 2016, the market took two working days to interpret a similar good policy move."

Sayadur, who is also president of the Bangladesh Merchant Bankers Association, believes the policy support will help the capital market with liquidity for a longer term.  

However, a brokerage professional at a bank subsidiary expressed his frustration as his bank's bosses had not accepted his verbal proposal of opting for the facility. 

He said the bank management is neither confident about the market direction nor optimistic about governance practices within the capital market. 

"But I do not know whether they will turn positive in the coming days, especially if the market moves higher somehow."

Most traditional banking bosses and board members lack an understanding of market behaviour and a good time to be aggressive in stocks, the market expert added, citing the tendency to follow trends instead of going for value investment.

Trend followers only look for the desired direction while value investors consider the actual worth of securities. 

"I cannot blame them because their experience in the capital market has really been bitter for over a decade. In the 2007-2010 period, they had over-equipped our teams and now it is an upside down situation," the brokerage executive stated.

Due to the liquidity crisis, gradually deteriorating fundamentals of majority companies, continuous listing of poorly performing companies and weakening existing investors amid an absence of fresh blood, the stock market has dropped over one-fourth in the last two years. 

In January this year, the major indices suffered another over 10 percent fall. But in recent weeks indices have recovered to make the year-to-date return to 0.4 percent till Tuesday. 

DSEX, the key benchmark of the Dhaka Stock Exchange, gained 2 percent to close at 4,471. Turnover crossed Tk500 crore at the premier bourse, which had been Tk340 crore in the previous session. 

Annualised price to earnings ratio of the market is below 12, which has made the Bangladeshi capital market one of the cheapest among peers.