Mon, Feb 22, 2010 page11

• Frenzy for stock sparks fear of Bangladeshi crash

  • AFP
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  In a run-down office in downtown Dhaka, excited investor Mizanur Rahman has just spent his life savings of US$3,000 on shares despite knowing nothing about market fundamentals.

  Everyone in this unofficial trading room, one of hundreds across the country, is glued to a screen showing share price movements on the Dhaka Stock Exchange — up nearly 30 percent since last month.

  “My friends make hefty profits investing in stocks and told me I could make 20,000 per month by investing 200,000 taka [US$3,000 dollars],” said Rahman, a 30-year-old electrician who returned from working in Singapore last week.

  “Some people have said the market could crash any time, but I’ve been hearing about this for years. In reality, it’s going up and up,” he said.

  Rahman is one of 143,000 people who opened electronic share accounts countrywide in the first two weeks of this month. The figure has officials predicting this month will break the previous record, set in October 2007, of 191,000 new accounts.

  But like the majority of Bangladesh’s new part-time traders, Rahman has no idea what the bourse’s largest listing or best performers are, what the quarterly or annual profits of key firms are, or whether a stock is overpriced.

  Officials say such blind enthusiasm by retail investors has fuelled a dangerous up-trend at Bangladesh’s main bourse — the general index hit a record high of 5,828.38 points this week, up 28.5 percent since the start of the year.

  This year record-breaking highs have become a daily occurrence on the Dhaka Stock Exchange as investors overlook a series of curbs and warnings by regulators, who are concerned a crash could wipe out savings.

  “The market is dangerously overheated with the daily infusions of liquidity by new retail investors who have barely any idea about the fundamentals of the market,” said Anwarul Kabir Bhuiyan, Securities and Exchange Commission (SEC) executive director. “We could see a massive correction anytime.”

  He said the SEC had restricted borrowing to fund trading of shares in scores of companies, placed many stocks on watch and dished out repeated warnings.

  “What can we do if people don’t heed our warnings? We’ve even received threatening phone calls telling us not to act against this bull run,” Bhuiyan said.

  In November 1996, wild speculation and lax regulations sent Dhaka stocks soaring to 3,600 points before a crash took them to 700 points, wiping out thousands of families’ savings and slowing economic growth the following year.

  On Thursday, in response to recent surges in the price of shares for two key listed companies, including Nobel prize winner Muhammad Yunus’s Grameenphone Ltd, the SEC placed restrictions on both, effective from today.

  The move saw share prices for Grameenphone drop around 6 percent by close Thursday, but experts say the new curbs will not halt the bull run.

  “The market is going up and up, defying all logic — this is driven entirely by rumor,” said Reaz Ahmed of LR Global, a New York-based fund manager.

  “Real economic growth has slowed down and the fundamentals of the economy are not that strong,” he said.

  The market was “heavily overvalued” and that he expected a 20 percent correction to come at any time, he said.

  Bangladesh’s economy is projected to grow 5.5 percent in the year ending in June — its worst performance in eight years.

  Exports, the main lever of growth, declined by 6 percent in the first six months to December. Inflation has reached 7 percent, with food inflation believed to be significantly higher.

  Cash from remittances — some US$10.5 billion last year — and a government amnesty which allows untaxed cash, often from bribes, to be invested in the bourse have fuelled the bubble, AIMS fund manager Yawar Sayeed said.

  “New investors are being bused in by brokers from rural towns to feed the frenzy,” he said.

  “A massive correction has become long overdue. There is a very strong chance we’ll have a crash, and if this happens it will destroy the lives of hundreds of thousands of people, and the scale of devastation will be worse than 1996,” Sayeed said.
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