Poor integrity, regulatory issues hurt stock investors most: Survey

Illustration: TBS

It was not macroeconomic issues or corporate earnings that dragged the stock market down in 2022. Instead, investors kept negatively responding to the poor integrity of the capital market, regulatory issues, and declining investor confidence, reveals a recent sentiment survey.

The Bangladesh Capital Market Sentiment Survey 2023 by the top-tier brokerage firm LankaBangla Securities also found that nearly two-thirds of the respondents expect no improvement in the level of integrity in the capital market.

The flagship annual survey at its 11th continuation had over a hundred respondents, including investment bankers, managing directors, chief executive officers (CEOs), brokerage executives, service holders, retail investors, businessmen, students and others from various walks of life.

As in every year, regulatory problems and the perceived low level of market integrity were at the top of the list of problems investors fear most. This year macroeconomic issues and deteriorated corporate earnings were noticeable.

Of the respondents, 79% believe the level of integrity in the country's capital market is either poor or below average, while 67% say they fear fraud and manipulation in the market.

In 2022, the capital market performed badly, according to half of the respondents, while 31% said it was moderate. And the floor price, declining investor confidence, and fear of manipulation were the prominent factors behind it, said the majority. Some blamed the lack of regulatory reforms, the taka's depreciation and the liquidity crisis for the situation.

For 2023, a weak regulatory framework and lack of confidence would be the biggest risks, followed by poor earnings amid an economic slowdown, a lack of good stocks and listed company stories, an increased foreign sell-off, decreased liquidity flow, and interventions through frequent policy changes by different regulatory stakeholders, said the survey respondents.

In similar sentiment, the global economy, the war in Ukraine, local political instability, weak exports, low remittances, the energy crisis, and currency depreciation were all surpassed by inflation and the crisis in the banking sector as the biggest risks to the Bangladesh economy in 2023. Nearly half of the respondents categorically asked for more supportive policies by the central bank.

Over 68% believe inflation will increase in 2023, while 84% fear that local currency will depreciate further, 74% complained about the deteriorated competitiveness in terms of energy prices, and a majority expect higher foreign direct investment thanks to the economic growth story both local people and the world happen to believe in.

Export diversification, trade treaties, more stimulus packages, rational tax structure, reform within the tax authority, and use of technology to detect tax evasion were among the important suggestions the survey respondents made.

However, a perceived higher interest rate, slower private credit growth, a current account deficit, and a weaker credit rating are among the cautions.

Majority respondents feel brokerage professionals are not qualified enough to recommend stocks to buy and sell, and equity research reports by analysts help make better investments.

At the end of 2023, the stock market may remain moderately bullish, except for a majority. While one fifth said they were short-term investors, nearly one third were mid-term, and another one-third were long-term investors, while over 16% were inactive in the depressed stock market in 2022.

Gold and equity are being perceived as the most lucrative asset classes, where investors are looking most for pharmaceuticals, insurance, service, and IT stocks.

Two-thirds of respondents are unhappy with the level of corporate governance, while nearly one-third said it is average in Bangladesh.

The Bangladesh Securities and Exchange Commission (BSEC) has some capacity constraints, agree 54% of respondents. Questions regarding how much of the existing capacity the regulator is using in the interest of a higher integrity market were not a part of the survey.