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Commentary

Bullish trend at Dhaka Stock Exchange: A note of caution

By Abu Ahmed Guest Columnist
During the last one month the Bangladesh stock market has seen a phenomenal rise In stock prices pushing the hitherto a stand still DSE Composite Price Index from 290 to 305 in the week ended on May 14 The Increase was marked, at the Bangladesh Export-lmoort Company (Beximco) stocks price jumped from Tk 10 to Tk 15 within a week
Later, the Increase spread over to some other stocks like Ctg Cement. Beximco Pharmaceuticals. Apex Tannery and Monno Ceramic.
In two weeks time starting from 30th of April and ended on 14 of May, the price for Beximco Pharmaceutical stocks moved up from Tk 238 to Tk 305 (a 28% rise), that of Apex Tannery from Tk 216 to 270 ( a 25% rise), and that of Monno Ccramk- from Tk 168 to Tk 225 la 34% rise). In this period, on average stocks worth of Tk 12 lakh were traded dally on the Door of the Dhaka Stock Exchange, and most contributions were made by the above few stocks
In the previous two weeks, stocks of Beximco contributed mostly to the total trad Ing volume and Its price rise During that pe riod Beximco paper prices Increased by fifty per cent.
Among the holding companies (actually they are subsidiaries) the stix-ks of Osmarila Glass and Ctg. Cement held sway over other co stocks in term of price increase. In two weeks lime ended on May 14. Ctg Cement slocks Increased from Tk 221 to Tk 264 (a 19% tn crease) and that of Osmania Glass sheet from Tk 227 to Tk 267 (a 17% rise)
Noticeable that, only the scrips of the above half a dozen stocks registered a sharp rise within a span of one month period while other stocks moved very little In price. This puzzles the ordinary investors In understanding what caused this sudden hike In the prices of those selective stocks To most of the market watch era speculation playing a big role behind this price upsurge of the selective stocks.
Apart from speculation, another rationale explanation for the recent price rise of selective stocks is that some of these stocks remained undervalued in the post, now potential investors have focused their attention on them and the prices are moving towards right places only.
Other explanation, which are not credible though, that foreign funds, specially, from Hong Kong is pouring In Bangladesh stock market, and that has caused prices of selective shares go up.
However, behind all these explanations there Is one more explanation which is the most important in the price upsurge of these stocks, and that is. the confidence factor. Stocks whose prices soared up recently are those which were trusted by the Investors for regular good dividend offering In Bangladesh's aiding stock market the managements of Beximco group. Monno Ceramic and Apex Tannery are still taken with confidence by the investors. Of the other two stocks of Ctg Cement and Osmania Glass Sheet the rise occurred because these two companies maintained a good dividend rale offer to the in vestors in the paM compared to other holding companies mostly, due to a protracted market they have for their products at this moment
Another factor that contributed to the price rise of stocks of these two companies is that operators are speculating about a hundred per cent privatisation of these companies through, thfr selling of flftyone per cent remaining I shares now vested with the government it was
also heard that Malaysia showed interest in buying the rest of the govt's shares tn the Ctg Cement, and Osmania Glass Sheet was going to be modernised with a foreign help.
For an Investor, rise in stock price is a happy news, though It Is not clear whether a chaotic rise is a happy news or not. But to the speculators and direct operators In the stock market chaotic rise In stock prices Is preferable as they can make most gain in such a situation. most of the time, at the expense of simple-minded Investors.
What creates chaos In stock prices? Yes. many factors, also the human factors. Sometimes the operators themselves create ' chaos by turning Into manipulators, and then sell when Investors buying and buy when investors selling. Which price Is the right price: Whetlicr the Investors selling price or the operators buying price?
Normal rule Is that Investors can not compete with the operators, because, the latter are the price setters, and the former are price tak era. This prevent also the Investors from con tlnuou* reshuffling of their portfolios which Is a basic requirement for making gain through stock market investment This also keeps away many other investors from Investing In financial assets like stocks, bonds An ordinary Investor can not keep pace with the moving prices because of the time taken In buyingselling process through a broker. In many cases the lengthy time tn transaction process puts an Investor In a disadvantageous position in the form of rise of prices of desirable stocks to a point wherefrom there Is every likelihood that they will be falling
Apart from losing gains from the lengthy time element taken tn completing a deal through a broker the investor Is also to see whether the price surge of stocks Is a result of human manipulation A stock s price is moving up does not mean that It is becoming more valuable to an investor or adding tn real value to Itself, but may be going up simply because somebody wanting it to go up. Manipulation to a practice widely used in slock trading either singularly or in collusion with others, and investors are to be cautious about such a move while deciding Investment In strx ku
Manipulation is easier to be carried out in a small stock market like ours where buyers and sellers are few and where stock transactions are not overseen and regulated When prices of stocks reach a high point because of non eco nomic factor the manipulators sell off their stocks and appropriate the gain at the cost of last entrants to the market.
They can do otherwise also, can manipulate the prices downward, create panic in the minds of stock holders, tempt them to sell at low prices, and then do whatever 1s needed to push the price up again
In both the rase* of manipulation whether towards a downward or an upward the investors are to become the victim* of the prac tlce. they buy when it 1* actually a time for selling and they sell when tt I* a time for buy
In Bangladesh, we do not have any significant stock market a* yet but whatever market have that Is also not overseen. or regulated.
There are crashes here too. but goes unno-tlced. because. Investors tn large numbers are not still Involved In stock Investment, they prefer the bank Investment to a stock invest ment. Govt should pay more attention to stock market development, a* only through this we can derive benefits of a nurrket economy