Crisis of confidence: Why the Bangladesh stock market is faltering

The stock market, once hailed as a potential engine of economic growth and a gateway for retail and institutional investment, is now suffering from a deep and chronic crisis of confidence. 

Turnover at the Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) has plummeted to multi-year lows, stock prices remain stagnant despite economic size and growth, and investors, both domestic and foreign, are withdrawing amid growing concerns over governance, manipulation, and regulatory inconsistency.

Despite periodic surges in investor interest, particularly after the 2010 bull run and subsequent crashes, the market has consistently failed to deliver on its promise of becoming a transparent and efficient investment avenue. 

Repeated scandals involving price manipulation, insider trading, disclosures of price-sensitive information, and weak IPO vetting have damaged public trust. Government interventions, often well-intentioned but poorly executed, have further eroded confidence.

Regulatory weakness 

At the centre of this malaise lies an ineffective regulatory environment. The Bangladesh Securities and Exchange Commission (BSEC), though empowered with oversight authority, has struggled to enforce accountability. Loopholes in surveillance mechanisms allow market manipulation to go unchecked, while regulatory responses are often reactive rather than proactive.

Frequent policy reversals, such as the arbitrary floor price imposition and sudden withdrawal of market-support measures, create uncertainty and deter long-term investors. Meanwhile, delays in implementing reforms like demutualisation, SME board expansion, and the bond market development plan have left the market narrow and abstract.

Institutional participation remains ominously very low

Yet institutional investors in Bangladesh remain underrepresented, in part due to the lack of governance reforms and transparency. Mutual funds and pension schemes are immature, while foreign portfolio investors are discouraged by erratic policy changes and limited exit mechanisms.

This leaves the market heavily reliant on individual retail investors, who are often uninformed and vulnerable to rumours, hype, and manipulative practices.

Quality listings

High-quality companies are reluctant to list due to burdensome disclosure requirements, poor post-listing valuations, and fears of reputational risk. Instead, many IPOs are seen as opportunities for quick profit rather than long-term investment. This discourages serious investors and perpetuates a cycle of low-quality offerings and poor market performance.

What needs to be changed?

The BSEC must be empowered and equipped to act independently, enforce rules uniformly, and crack down on manipulation without political interference as well as moral and ethical practices. 

Tax incentives, regulatory clarity, and governance reforms can attract long-term investors like mutual funds and pension schemes.

Requiring timely disclosures, enforcing compliance, and adopting global best practices in auditing and corporate governance can improve investor confidence.

Easing the listing process for credible companies and ensuring fair valuation mechanisms can bring more dependable firms to the market.

Governance gaps and regulatory insufficiencies

One of the most significant barriers to investor confidence is weak market governance. The BSEC, though active in policy-making, has struggled with consistent enforcement. 

Price manipulation, insider trading, and preferential treatment of certain market players are widely perceived but rarely penalised. Inconsistent application of rules, coupled with politically influenced decisions, further undermines the legitimacy of regulatory action.

The author was an experienced CEO of an investment bank and asset management company in Bangladesh.