Mutual Fund industry agrees to buy more stocks

• 36 closed-end and 74 open-end funds
• Tk16,410cr asset under management
• Prudent asset managers have handsome cash in hand  
• Industry capable of buying stocks worth billions of Taka
• Mutual Fund industry agrees to buy more stocks

The recent downturn in the market has made many fundamentally sound stocks cheaper, and created a good buying opportunity for investors, believe professional asset managers of the country.

In a meeting with the Bangladesh Securities and Exchange Commission (BSEC) on Thursday, members of the Association of Asset Management Companies and Mutual Funds agreed to increase the use of their liquid assets to buy more undervalued stocks in the coming weeks.

After the meeting, BSEC Commissioner Professor Shaikh Shamsuddin Ahmed said, "The asset managers agreed on three points we discussed and I hope it would be beneficial for the market."

The industry believes there is nothing wrong with the behaviour and outlook in the stock market nowadays. They would use more of their cash to buy good stocks from the bourses and the industry would strengthen their campaign to manage more institutional funds, said the BSEC commissioner.

Dr Hasan Imam, the president of the association, told The Business Standard, "With the recent sell-off in the markets, many fundamentally solid stocks have entered attractive valuation territory. In our view, this creates a near-term buying opportunity."

"During the meeting with BSEC, our members expressed interest in proactively buying shares in the coming weeks," he added.

Responding to a question regarding how much of the industry cash can be poured into stocks, the asset manager said, "The amount of investment will depend on the availability of fund liquidity for individual fund managers."

One of the members of the association said the industry players are not holding the same amount of cash. Some are more exposed in securities while some are less, on top of their difference in assets under management.

In Bangladesh, conventional mutual funds have to keep at least 60% of their assets under management in listed scrips regardless of market condition. And, they can hold the remainder in cash or park it into cash equivalent instruments, such as bank deposits.

The asset allocation, of course within the regulatory thresholds, depends on the asset manager's prudence and capability to better navigate in different market conditions.

Nowadays, the BSEC is also allowing more flexibility in the asset allocation, based on the pre-declared style and investment goals of a particular fund.

For example, a Shariah-compliant open-end fund has not been allowed to even hold any listed scrip at all in a particular moment. On the flip side, its right to invest in listed securities has been curbed to 75% of the total asset under management.

In the Bangladesh mutual fund industry, 33 asset managers through 110 open and closed-end funds are managing over Tk16,000 crore as of Sunday morning. The industry is too small here as only around 3% of the market capitalisation is under their management, which is 10-20 times higher in other capital markets.

However, if the industry transfers 1% of their asset to stocks from cash, the bourses would see a fund inflow of Tk160 crore, in case of 10% it would be Tk1,600 crore, said an asset manager after the meeting.

Over the last week, the BSEC was discussing the market situation with stakeholders urging their responsible investment behaviour – not to go for panic selling like the retail investors and instead of grabbing the opportunity to buy low as contrarian investors – during the market volatility.

The Ukraine war and the global commodity price hike had pushed DSEX, the broad-based index of the Dhaka Stock Exchange, down to 6,300 level on Tuesday, from 7,000 level three weeks ago.

The regulator's unconventional interference through uplifting the bottom circuit breaker in individual scrips to 2% a day, from 10% helped the index bounce back to 6,668 on Thursday.