Investors leave capital market as return dips

Highlights:

• Beneficiary owners (BO) account necessary for transactions on stock market
• Number of active active BO accounts:
• 25.71 lakh in 2010
• 22.99 lakh in 2020
• Number of active BO accounts decreased by 2.72 lakh in 10 years
• 31.96 lakh BO accounts active in 2015 – highest in the decade
• Investors made Tk82 profit for Tk100 investment in 2010
• Investors suffered Tk17 loss for Tk100 investment in 2019
• Investors leaving capital market after repeated losses

After the stock market crash in 2010 the authorities forged many new laws and implemented structural reforms, but that did not help investors regain their confidence in the capital market.

In the last decade, the country's economy expanded rapidly, but the share market's contribution to gross domestic product (GDP) has decreased. Instead, many investors left the market after they lost everything.

In 2010, the stock market return in Bangladesh was 82 percent, which means investors made Tk82 in profit against an investment of Tk100. This happened because prices of the listed companies' shares grew much higher that year.

In the same year, market return in India was 17.4 percent, in Pakistan 28.1 percent and in Sri Lanka 96 percent.

In 2019, investors in share markets got 14.4 percent return in India, 9.9 percent in Pakistan, and 1.3 percent in Sri Lanka; while Bangladeshi investors lost 17 percent of their capital.

Till June this year, stock market investors lost: 8.3 percent of their investment in India, 1.6 percent in Pakistan, 15.4 percent in Sri Lanka, and 10 percent in Bangladesh. Steep falls in the price of the shares of the listed companies caused the losses for the investors.

Mohammed Rahmat Pasha, managing director and CEO of UCB Capital Management Limited, said, "The amount of money invested by the investors depends on the market return. People come to the market to get a good return. So more investors flocked to the market in the years when the companies could provide them considerable profits."

"Till June this year investors lost Tk10 per Tk100 investment in the capital market. So people are not interested in investing in the capital market," he added.

According to the Central Depository Bangladesh Limited (CDBL), in July this year, around 2.5 lakh beneficiary owners accounts (BO accounts) were closed. Currently, there are 23 lakh active BO accounts on the capital market, which is the lowest number of accounts in a decade.

There were 25.71 lakh active BO accounts in 2010, which increased every year. In 2015 the number reached 31.96 lakh, which was highest in the last decade.

However, during the last six years 8.97 lakh BO accounts were closed. Till now around 70 lakh accounts have been opened on the stock market.

Professor Abu Ahmed, an expert on the capital market, told The Business Standard that despite new laws and structural reforms, good companies were not attracted to the capital market which had shrunk.

He said, "Many people lost everything by investing here, while other economic sectors have made progress. Investors are leaving the market after suffering losses year after year. So their BO accounts are closed."

Dr Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue, identified five main problems that are holding back the capital market. These are: poor quality Initial public offerings (IPOs), anomalies in financial reporting,  a lack of transparency in BO accounts, suspicious trading on the secondary market, and the questionable role of institutional investors.

Further, an abnormal rise in prices of "z" category shares, the low level of dividends offered by listed companies, and forced sales of shares by merchant banks, also create problems.

Dr Moazzem said, "When the market is not monitored properly, and the capacity to trace irregularities is not developed to take action against them, then investors come to it for a short time and leave again. They do not intend to invest for a longer period."

"This situation can be changed only if the fundamental weaknesses of the capital are removed. An investor will have confidence in the market when the regulatory body can take action by identifying irregularities," he added.

Dr Moazzem opined that the new commission should consider these issues and take initiatives in this regard.

Regarding the BO accounts, he said, "A portion of BO accounts remain active every year while a large portion of these accounts remain inactive. Plus, new investors are also coming to the market. There should be transparency regarding these accounts."

Dr Moazzem thinks that attaching the prospective account holder's Taxpayer's Identification Number (TIN) and National Identity Card (NID) should be made mandatory for opening a BO account. Making the BO accounts more transparent will reduce the irregularities on the stock market.

Barrister AM Masum, head of Chamber, The Lawyers and Jurists, told The Business Standard that the institutional investors in the capital market did not play the role they were supposed to play.

He said, "Transactions on the market did not increase as the institutional investment decreased. Meanwhile, the stock markets across the globe have been digitised, but our country has not yet been able to start online transactions. The Demutualisation Act has also not been fully implemented."

Sharif Anwar Hossain, president of the DSE Brokers Association (DBA), said many investors invested in the capital market by taking margin loans from brokerage firms. However, when they suffered losses, they left the capital market. The brokerage firms closed a large number of BO accounts by force-selling shares.

He said, "During the heydays of the IPO market, people could open more than one BO account to apply for IPOs. But, now the market's condition is not that good, while the regulatory body has become tougher about the transparency of the BO accounts. So, a large number of BO accounts have been closed."

He further said although more than a 100 companies raised their capital in the last decade, there are very few companies that investors trust.

According to the CDBL, 3.38 lakh of active BO accounts have never been used, while there is no money in 7.35 lakh BO accounts. The number of BO accounts with share balance is 12.26 lakh.

Without holding a BO account, an investor cannot do a transaction on the capital market. The account holder must renew it by providing Tk450-1,000 as a maintenance charge to brokerage firms.