Dhaka-Chattogram stocks take a hit as Ukraine crisis worsens

Russia's invasion of Ukraine, and Western sanctions against Russia have further heated up the global commodity market, especially crude oil and energies, dragging down investors' sentiment in the local bourses of Dhaka and Chattogram. 

The DSEX, broad-based index of the Dhaka Stock Exchange (DSE), fell by 109 points or 1.57% on Thursday as Brent Crude price hit above $103 on the global market for the first time since August 2014.

"Today's market reaction is a consequence of escalating conflict between Russia and Ukraine," said Edge Research and Consulting Partner Asif Khan, a Chartered Financial Analyst (CFA).

"As investors fear that an escalated conflict will result in higher energy and commodity prices, markets across the world were adversely impacted," he explained. 

Analysts are concerned that the soaring crude oil price might add to the inflation, and may hurt corporate profitability, said Mohammad Emran Hasan, chief executive officer (CEO) of Shanta Asset Management. 

In any such circumstance, risk-averse investors try to reduce some of their risk exposure in the market to wait and see what finally unfolds. 

"This (Thursday's sell-off) is the instant market reaction, and overreaction to some extent," said Emran Hasan.

If the Ukraine issue does not prolong, and global commodity markets get enough supply and cool down, investors' stock strategy would not take much time to change, said PLFS Investments CEO Abdul Muktadir. 

He believes Bangladeshi stocks on average should not be hit hard by the Ukraine crisis that unfolded to date as the capital market is not prone to capital flights, and the overall market is not much expensive in comparison with the corporate earnings. 

The DSE is trading at an average price to earnings (PE) ratio of 15 while the average price of the total securities is only 90% higher than their underlying net asset value. 

The PE ratio is theoretically considered to be equal to the needed number of years a company might take to pay its investors back out of its annual profits only. 

Thriving stock markets across the world, including that in India, are trading at much higher PE ratios.

"The problem is more with investors' sentiment than fundamentals till date," Muktadir said, adding that local stock investors' sentiment was already weakening for the last one and half weeks amid the resurfacing of the central bank's cautious stance regarding the lenders' capital market exposure and securities regulator's move to clear the brokerage industry's negative equity in clients' margin accounts. 

Following two declining sessions earlier this week, the DSEX was finding a base over 6,900-mark as many stocks, especially the large-cap ones, came down within the buying range of patient investors. Thursday's sell-off broke the level and DSEX closed at 6,839. 

Investors' collective caution in buying was not reflected during the sell-off on Thursday as daily turnover had dropped below Tk1,000 crore level on Tuesday and Wednesday when the market was trying to rebound and surged to over Tk1,050 crore on Thursday with an 18.3% increase. 

Out of 385 issues on the DSE, 30 advanced, 326 declined, and 29 remained unchanged on Thursday.

In the Chittagong Stock Exchange, all its indices were down by more than 1.5%, while daily turnover increased to Tk37.4 crore from Tk24.5 crore.