Capital market takes hit from economic uncertainties: Cenbank

Infograph: TBS

The country's capital market underwent notable fluctuations in the first half of the ongoing fiscal year, mainly due to various challenges, such as high inflation, exchange rate pressures, and economic uncertainties at home and abroad, the monetary authority said in a statement yesterday.

"The DSEX, serving as the benchmark index of the Dhaka Stock Exchange (DSE), experienced a slight increase of 0.64%, settling at 6,246 points at the end of 2023, compared to 6,206 a year ago. However, between June and December 2023, the DSEX witnessed a modest decline of 1.5%," read the monetary policy statement unveiled for the second half of the fiscal 2023-24.

The crucial indicator of capital market liquidity, the daily average turnover, dropped year-on-year by 44.80% to Tk543 crore by the end of 2023. This decline in turnover volume is attributed to investors' cautious approach, said the statement presented by Bangladesh Bank Governor Abdur Rouf Talukder at a programme at its headquarters.

The governor announced a contractionary policy stance, tightening the money supply to tame inflation, which has held above 9% since March of last year.

However, the statement did not mention anything about the floor price mechanism imposed by the stock market regulator to curb the steep fall in listed securities due to economic uncertainties.

The floor price mechanism, implemented on 28 July 2022, has been playing a crucial role in subjecting the market to a liquidity crunch, said a senior officer at a brokerage firm.

At present, over 60% of shares are stuck at the floor price, indicating no trading of these shares due to a lack of buyers and sellers, according to officials concerned.

Saiful Islam, president of the DSE Brokers Association, told The Business Standard earlier this month that the turnover of the stock exchanges drastically declined due to the floor price restriction. "If the share price is stuck at one place, then no investor will come to this market."

Regulators' initiatives

The Bangladesh Securities Exchange Commission (BSEC), in collaboration with the central bank and other relevant government entities, has consistently spearheaded initiatives to foster a robust capital and bond market.

The central bank said in the statement that the government's ongoing mega projects and private investments in the energy, power, and transportation sectors have underscored the necessity for a well-developed capital market.

To overcome the prevailing economic challenges, the Bangladesh Bank has taken several key initiatives to invigorate the capital and bond markets.

On 4 August 2022, the central bank allowed banks and non-bank financial institutions (NBFIs) to calculate their capital market exposure based on the investment cost instead of market prices for their held securities. This initiative bolstered the investment capacity of banks and NBFIs in the capital market, the statement said.

Furthermore, the Bangladesh Bank updated its guidelines on bank investment portfolios to stimulate bond market growth and expand investment avenues for banks on 31 August 2023. Under the revised guidelines, bonds, debentures, and Islamic Shariah-compliant securities are exempted from banks' market exposure limits.

To encourage diversification of portfolio risks, BSEC extended the investment duration for securities market intermediaries in listed debt securities and treasury bonds until March 2024 from the previous deadline of June 2023. These intermediaries must now invest a minimum of 3% of their portfolios in listed debt securities and a minimum of 1% in listed treasury bonds.

Moreover, the market regulator outlined specific roles and responsibilities for independent directors of listed securities or companies on 18 October 2023. These directors are mandated to prioritise good governance, sustainability, and the company's overall well-being within the regulatory boundaries set by the commission or other relevant regulators.

CPD survey

The Centre for Policy Dialogue (CPD) unveiled a study titled "Bangladesh Business Environment Study 2023: Findings from the Executive Opinion Survey" on Wednesday.

During the survey, the think tank reached 71 businessmen to know their opinions on the capital market.

Upholding the findings, CPD said 50% of businessmen believe that the major challenges in the capital market include suspicious trading in the secondary market, 53.1% think that the BSEC has a weak regulatory enforcement role, 50% perceive anomalies in financial reporting, and 56.3% believe that poor companies enter the capital market through initial public offerings (IPOs).

The think tank also mentioned that the same issues topped the list in 2022. Other concerns include the failure to ensure due diligence on stock exchanges, anomalies in financial reporting, and the questionable role of institutional investors.