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Stock Slide

Investors take to streets

Sarwar A Chowdhury
Stocks slid to a two and a half month low yesterday, triggering mild protests in Motijheel.
The flow of traffic between Shapla Chattar and Ittefaq crossing also came to a halt for three hours, causing congestion on either side of the commercial hub.
Protesters, under the 'Capital Market Investors Unity Council' platform, set fire to paper and wooden materials, chanted slogans and demanded resignation of the finance minister and central bank governor.
They also tried entering the Dhaka Stock Exchange office, but they were stopped by police.
The general index of the premier bourse plunged 1.6 percent to 5,920 points yesterday.
The market lost 300 points in the last seven days, a sign of deeper market volatility ahead, prompting the stockmarket regulator and other stakeholders to sit in immediate meetings.
The Bangladesh stockmarket witnessed a price debacle, which is inevitable after overvaluation, in January-February. But this time around, the market is facing a „ severe fund crisis, resulting in low turnover in the last one | month, analysts and stockbrokers said. “The fund crisis is caused by several factors, such as single party exposure to investment and shorter periods of time to adjust to the overexposure; inactiveness of institutional investors; the low entry of fresh investors; and a tendency to quit of many retail investors.
“As per donor agencies' prescription, several central bank initiatives at different times have limited the financial institutions' exposure to investment. Controlling the single party loan exposure is one of the major reasons behind a dearth of liquidity," said Akter H Sannamat, a chartered accountant and market analyst.
A financial institution is not allowed to invest over 10 percent of its total deposit in the stockmarket, while it cannot give loans worth more than 15 percent of the invested amount to a single party, including its subsidiary.
If any institution is overexposed, it will have to adjust the investment or loan within December.
“The central bank is doing this by terming the capital market risky. But it does not think about a default situation in the financial sector.
Default loans would be higher than the amount invested in the capital market,” Sannamat said.
The problem should be solved through collective efforts among the central bank, Securities and Exchange Commission, stock exchanges, merchant banks, asset managers and the listed companies association, he added.
“Unless the problems are solved in a coordinated manner, the market can be forced to go up for a day or two. It will not sustain," he added.
LankaBangla Securities, a leading stockbroker, said a dearth of liquidity has loomed over the market.
“Investors were at the end of their tether due to the consecutive losses of the index. They finally became panicked when the benchmark index dived below 6,000 points,” the brokerage house said in its regular market analysis.
After yesterday’s fall and protests, SEC is also worried. It sat with Dhaka and Chittagong bourses in an emergency meeting and sought recommendations on how to rejuvenate the market.
The bourses requested the regulator to ensure institu-
tional investors' active participation by resolving financial institutions' investment exposure and timeframe adjustments.
They also urged SEC to reallow random money netting facilities instead of existing selected money netting facilities, and reduce the trading cycle period fromT+3 to T+2 to increase the transactionvolume.
The bourses said they will also submit a set of written recommendation to the regulator onThursday.
SEC would also hold a series of meetings on the current situation with different bodies in the next three days, starting today. The first would be with Bangladesh Merchant Banker's Association.
Tomorrow, the regulator will sit with asset management companies and on Thursday, with the SEC advisory committee.
In a separate meeting, the merchant bankers urged SEC to allow them to raise their paid-up capital so that they can break the liquidity stalemate and invest more.
They also recommended for increasing the timeframe to adjust the stockmarket overexposure up to 2014.