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Stocks skid in panic sell-offs

Star Business Report
Stocks plummeted to the lowest yesterday in nearly one and a half years, trig gered by panic sell-offs in almost all sectors led by banks, a lifeline to the market.
Transactions came to a halt at the Sylhet and Khulna offices of the twin bourses amid a short spell of demonstra tion over the freefall of shares. Some angry investors ransacked the Khulna office of Dhaka Stock Exchange (DSE).
The benchmark DSE General Index skidded 86.54 points, or 3.45 percent, to 2416.66. the lowest since August 2007.
The DSE All Shares Price Index slumped 70.91 points, or 3.40 percent, to 2013.61. The DSE-20 blue chip index fell 72.23 points, or 3.48 percent, to 1997.90.
The markets in Dhaka and Chittagong suffered losses a day after the Securities and Exchange Commission (SEC) pledged some measures such as increasing brokers' credit extension facility from 1:0.67 to 1:1 to increase fund flows and investor confidence, which has been wobbly for about six weeks.
To prop up the troubled market, the SEC yesterday further increased brokers credit extension facility from 1:1 to 1:2.
Among other steps was the opening of a separate window for trading on nonperforming shares of low-quality or Z shares.
"A fall in almost all traded issues reinforces the feeling that investor confidence is down,” said Prof Mahmood Osman Imam, who teaches finance at Dhaka University.
"Under these circumstances, investors will want to offload their shares faster fearing a further decline in prices," he said.
Imam suggested that brokers and institutional investors play proactive roles in stabilising the market.
Opening upbeat, the market lost pace shortly amid selling pressure propelled by thin participation of institutional investors in trade.
Growing fears over lower-than-expected dividends from banks fuelled jitters on the DSE, the prime bourse.
Next came a Bangladesh Bank call to banks to give up risky banking, which also hurt investor sentiments, analysts said.
The central bank made the call on Tuesday as the credit-deposit ratio of seven banks crossed the permissible limit of 82 percent and hurtled from 85 percent to 98 percent in 2008. The BB termed the ratio risky.
The credit-deposit ratio of AB Bank was 91.57 percent, NCC Bank 95.63 percent, Standard Bank 97.96 percent, First Security Bank 96.39 percent, TYust Bank 83.24 percent, Shahjalal Islami Bank 95.01 percent and BRAC Bank 88.45 percent.
Of the 266 issues traded on the DSE, only 28 issues ended as advancers, out-
numbered by 233 laggards. Five issues finished unchanged.
Turnover however rose on the DSE with Shinepukur Ceramics, Beximco Pharma and Uttara Bank topping the turnover board. All the issues declined.
Md Rakibur Rahman, director of DSE, said the market rout had been deepened by rumours by "some quarters".
"The market should not suffer such a fall even if there is a shortage of liquidity. I think the situation has heavily been fed by rumours," he told The Daily Star by phone.
Rahman claimed that an unnamed quarter had spread rumours by mobile text, which hurt small investors.
"It appears that someone is trying to
take advantage of the situation by creating volatility," said Rahman.
A market analysis by Equity Partners Ltd (EPL), an investment bank, observed that the losses in the market were due to panic that influenced the "psyche of general investors".
“This fall is not due to any weakness in the real economy. The real economy of Bangladesh has been performing admirably during this global downturn, said EPL, citing growth in exports remittances and import of capital machinery and banks health
EPL also linked the decline to high dividend expectations, which had earlier pulled the prices of issues.
"With die declaration from Dutch-Bangla Bank Limited, the retail investors believe die similar companies will not provide expected dividends. It has had a negative impact on a number of companies,” it observed.
But EPL said the prices of stocks on the DSE are not overvalued. "There are great opportunities for return from some extremely good companies."
"We reckon that this will be temporary. Once investor confidence is restored, the market will start performing according to its underlying strength,” it said.
SEC Executive Director Farhad Ahmed said the regulator had awarded Janata Bank a merchant banking licence, expecting that the bank would contribute to the liquidity flow into the market.