The country's capital market is mainly suffering from a lack of governance – not a shortage in the supply of money, said the Centre for Policy Dialogue (CPD).
The independent think-tank made the observation while presenting a report – "State of the Bangladesh Economy in FY2019-20" – at a press briefing at the CIRDAP auditorium in Dhaka on Sunday.
At the briefing, CPD Research Director Dr Khondaker Golam Moazzem said, "The majority of the stakeholders have a tendency to label the crisis in the capital market from a 'liquidity shortfall' point of view."
"The government has tried to address the challenges here through a number of fiscal and budgetary measures. But the situation has proven that the market did not respond to such measures, like injection of capital, undertaken since January 2019," he added.
DSEX, the key benchmark at the Dhaka Stock Exchange came down to a three-year low in October, despite a series of government initiatives to bolster investor confidence.
In fact, the stock market is suffering because of a weakness in institutions and weak governance in the market, said Dr Moazzem.
The CPD also pointed out that poor quality of initial public offerings (IPO), anomalies in financial reports, lack of transparency in Beneficiary Owners (BO) accounts, suspicious trading in the secondary market, and the questionable role of institutional investors, are contributing to the crisis in the share market.
Referring to the fall in recent quarters, Dr Moazzem said that "increased market volatility has further aggravated the crisis."
Volatility refers to sporadic price swings that destabilise a market, and investors during such phases lose confidence in investing more, or hold on to what they own.
The CPD says that market volatility in July-October 2018 was at 100.5, and this increased to 163.3 during the same quarter this year. The higher it reads, the more the market is destabilised.
For the ongoing volatility in the capital market, the CPD blamed lower level of dividends offered by listed companies this year, abnormal rise of prices of junk shares, forced sale of shares from BO accounts with margin loan, institutional investors' dormant role during volatility, and no visible impact of the DSE's strategic partnership with the Chinese consortium.