Prayers for a bull market

The stock market in Bangladesh is still reeling from the shock of the 2010 crash as the indices at the Dhaka and Chittagong stock exchanges are still faltering.

Analysts and experts still hesitate to say we are in a bull market even nine years after the market crashed from an unusual height.

Thousands of crores of taka for market support, massive structural and legal reforms, awareness campaigns – nothing has proved enough to bring back vitality in the stock market.

Observers say Bangladesh is a rare case of the stock market gradually diverging from the mainstream economy and falling way behind.

As in countries that suffered the global financial meltdown in 2008-09, Bangladesh initiated different steps to boost investors’ confidence.

Almost all the stock markets in developed, emerging and frontier markets have rebounded in a way that made investors celebrate, and they later even surpassed their previous heights in many cases.

Countries such as Japan, the USA, Germany and the UK are still licking their wounds after the 2008-09 crisis. But with all-round policy support, loosened monetary conditions, improved corporate earnings and, most importantly, investors’ boosted confidence, each of the countries saw their stock indices reach new heights.

They are examples of how a developed stock market can portray its economy to global investors.

After the same crash, India and Pakistan, two South Asian neighbours of Bangladesh, have regained their high stock indices.

The Indian stock market rebounded from the crash a decade ago, and has reached newer heights. Analysts around the world cite it as a fair reflection of the country’s economic growth and improved business environment.

Even Pakistan, with political chaos and extreme security uncertainties, along with its weakened external financial accounts, has witnessed its stock indices reach record heights because they managed to attract investors to count on their corporations and future potential.

But despite having a higher-than-ever economic growth, Bangladesh failed to restore the market both in terms of indices and investor participation.

Why is Bangladesh a different story?

The stock market in Bangladesh has been left behind as always, and the gap between the economy and the stock market is getting wider. A decreasing GDP to market capitalisation ratio is an example of that.

“The economy is growing well here, but the stock market has been left behind for many reasons. The core one, I think, is that it could not include performing companies after the crash, neither the profitable state-owned enterprises nor the big companies run by local entrepreneurs, let alone the multinationals operating here,” said Abu Ahmed, a capital market expert and honorary professor of economics at the University of Dhaka.

“The market is in a vicious cycle of low supply and low demand for securities. We need to work on both simultaneously, and some good Initial Public Offerings can be a breakthrough here,” said Shakil Rizvi, former president of the Dhaka Stock Exchange and the current president of DSE Brokers Association.

“The market also demands steps to boost investor confidence because it is suffering from the lack of it. The daily turnover at the DSE was expected to be at least five times higher by now, but it is not happening because of a lack of investor confidence,” the veteran stockbroker added.

Nine years since the fall

From its extreme bottom in 2013-14, the market did attract some foreign investors to buy undervalued shares listed at the stock exchanges at Dhaka and Chattogram.

But they have lost interest in recent years because the uncertainties outweigh the growth of businesses at a bargain price, according to analysts of different investment research teams.

Local investors had also attempted to increase efforts several times since the DSEX, the benchmark index for the Dhaka Stock Exchange, bottomed out to below the 3500 level. But they became frustrated because the market upturns have not been sustainable.

Nine years have passed since the stock market at Dhaka and Chattogram crashed in 2010 from an unusually high level, and thousands of smart and around a million naive investors have been praying to see the market go up because they dream of recovering their losses.

Indices are still struggling to even maintain the slowly attained points, let alone seeing a record high as in the stock indices in New York or Mumbai.

Since the rebound of 2013-14, upswings have been followed by sharper downswings that indicate very haphazard sell-offs, no matter if they were for booking profits or to avoid further losses, said a senior analyst at a top local equity research team.

Fluctuating corporate earnings, deterioration in the overall money market situation, and sector-specific outlooks are being blamed for this.

Are we in a bull market?

The stock market in Bangladesh is yet to see the bull market return because it is failing to sustain the highs in share prices and indices, said experts.

They prefer to say the market is consolidating because it is going through some ups and downs, and the pivot is just above the 5000 mark for the DSEX.

Despite most of the experts’ optimism over the public domain, investors are troubled over a multi-million-dollar question: Is the market consolidating for the next rally or is it waiting for another nosedive as it did recently?

By definition, a bull market is one in which share prices are rising. From the valuation perspective, the phase demands less undervalued stocks at the stock exchanges. It also demands that on majority of trading days, gaining scrips outnumber losers in the market.

Investors hope for a better tomorrow, and look for some sustained stability in this phase of the stock market.

“The price level of some blue-chip shares such as those of Square Pharmaceuticals, Grameenphone and Renata suggests that this market is in a bearish condition. You may name some low or mid-cap stocks that are overvalued, and possibly try to offset the impact of blue-chip stocks’ price reduction. But I am not ready to consider those,” said Dr Mohammad Musa, a professor of finance at United International University.

Professor Abu Ahmed said since the market crashed in 2010, no more than two dozen companies have been able to perform consistently, and the lack of such companies is the biggest problem for the market.

He also said the market is in a bearish condition from all aspects. Here some scrips might appear to be gaining seasonally, the overall scenario is not positive.

Technical analysts say the time is crucial

Engineer Rahmat Ullah, a renowned Elliott Wave practitioner in Dhaka, warned his subscribers several months back in a social media post that the DSEX may go down further if the market fails to be sustainable.

Elliot Wave theorists, with their analysis of collective psychological response in different socio-economic context towards prices, have been forecasting markets around the world.

Some bearish forecasts such as the Wall Street crash in 1987 and the Dotcom bubble at the end of the last century initially pushed Elliot Wave theorists into radical territory, but finally their forecast came true.

Prayers for the bull market

Some small investors are often seen protesting in front of the stock exchange building in downtown Dhaka when the market is down.

Experts rationally say this is not the way to be a gainer in stocks.

But nobody seems to disagree with the prayers of the investors for a bull market in the coming days. Bangladesh deserves and needs it as the economy is growing, and it needs investment.