Stock investors only feel safe at night, and holidays

In the daytime investors are losers. Almost every regular trading day share prices continue to fall, to rattle them. This has been a common scenario of our stock market, resulting in 20% dip in share prices over the last nine months.  

The only time the stock prices do not fall is when the stock market is closed at night, or is on a holiday. Unfortunately, this has been the only way for investors to avert losses and a space for them to feel secure. So they should love the night for the time being.

It is not that the government has not made an effort to improve the health of the stock market. It has taken various measures.

The measures include widening banks' scope for investing in the stock market, doubling tax-free dividend income, raising quota for general investors in case of initial public offering, increasing lock-in period for sponsors' shares and imposition of a ban on mutual funds from giving out bonus shares.  

The finance minister also promised that more public companies will be listed in the stock market. At a meeting with the insurance companies that remain outside of the stock market, he asked them to get listed.  

But the reality is not inspiring. No measures could contain the stock market plunge. 

The most important question is: why did all the government measures fall flat?

We need not to be a rocket scientist to find the answer to this question.

Economists, bankers, market analysts have identified some major reasons behind the deteriorating health of our stock market. The reasons include liquidity crisis, rising non-performing loans and scams in the banking sector, lack of quality shares in market and poor governance in the financial sector. 

Every major problem remains a problem. The piecemeal efforts taken by the government could not resolve the problems, let alone improving the situation. 

Non-performing loans keeps rising. It now stands at more than Tk2 lakh crore, if we account for all sorts of defaulted loans. 

The government's latest policy to improve default loan situation by allowing defaulters to reschedule their loans, by giving only two percent down payment, drew huge criticism.

Economists and bankers have been continuously questioning its effectiveness and arguing that this cosmetic surgery will not improve the health of the banking sector plagued by default loans over the years.

Their apprehension is based on facts on the ground. 

In 2015, the government had given big loan defaulters almost the same facility to reschedule their loans. But this did not work as they have become defaulters again.  

Till date, no stern action was taken against any loan defaulter, particularly those that are willful defaulters. 

The governance in the banking sector is still fragile.

It is still suffering from the shock of some major loan scams, including the Sonali Bank-Hallmark and Basic Bank scams. 

The masterminds behind the loan scams were not brought to book. No major reform took place to improve governance. 

If the banking sector that plays a crucial role in boosting stock market remains in such a sick state, how it will contribute to improving the health of the stock market. 

The ailing banking sector is also one of the hurdles in the way to Bangladesh becoming an upper-middle income country by 2030, according to a concept paper of the planning commission drafted recently as the first step towards preparing the country's eighth five-year plan. 

The governance system in the stock market is ailing too. This has caused the rise of lack of confidence of investors in the market.  

Those who masterminded the stock market crashes in 1996 and 2010 were not put on the dock. They remain as free birds. The stock market is still suffering from the shock. And it is not free from manipulation. 

One thing is very simple. Without improving the governance in banking sector it is difficult to improve the health of the capital market. 

Similarly, if governance is not improved in capital market; banks, financial institutions and individuals will not feel secure to pour money into the market. 

So, not piecemeal, rather a holistic approach is needed to improve the health of the banking sector and the stock market. 

In the prevailing situation, the stock market alone is not responsible for its downfall. And the capital market that caused huge headaches for the government cannot be abandoned because of the crucial role it plays in many countries in economic growth, by increasing private investment. 

For example, stock markets in some of the largest Asian economies, including Japan, China and Singapore, have been contributing for decades to their robust growth.

However, in Bangladesh, things are different, as the country's stock market itself has been in severe crisis over a long time. Market capitalization in Bangladesh is inadequate for our expected growth. Low stock market capitalization-to-

GDP ratio suggests poor contribution to the country's economic growth. 

The planning commission in the concept paper rightly pointed out the poor state of our stock market.  

It termed our stock market outdated and one of the hurdles standing in the way to Bangladesh becoming an upper-middle-income country by 2030.

In view of the planning commission a vibrant and effective stock market is inevitably needed to help Bangladesh become an upper-middle income country, through a rise in private sector investment.

So, there is no alternative to improving the health of the stock market. 

Investors may prefer a sleeping market for the time being to avert losses. 

But the government should not feel the same way. Time is running out.