investors

Share Market – Protecting The Investors

investorsMNA Feature Desk: In the Share Market of Bangladesh, protecting the investors has been a long term issue. During the early ‘90s, the Bangladeshi citizens, who were deprived of employment opportunity and wanted to do some sort of business, received a huge opportunity in the form of Stock Market or commonly known as share market. Many people rushed to invest at Dhaka Stock Exchange and very soon the business of securities exchange became a very prominent sector. Thousands of investors were able to pull handsome amount of profit from this business as many were able to establish themselves in the society only working in the area. But the scenario did not sustained to be this much pleasant.

In the mid ‘90s, specifically speaking, in 1996, the investors first realized that the securities market is not only a bed of roses rather it has many flaws which needs to be addressed. While understanding this fact, many investors were hit hard with major loss of capital investments. Most of them could not sustain the losses and left the market with an empty pocket as well as an empty heart. Later, the government had taken some steps to digitalize the stock market. And slowly, the market recovered.

With the start of the new millennium, we observed a huge number of people rushing to the stock market business. Most of them belong to middle or lower middle income group without almost any industry knowledge and in cases, no education at all. People had the concept that money flies in the stock market and they associated all their dreams with this business.

Initially, they made a good profit. Rather than collecting the profit from the market, they made further and further investment even selling their ancestral properties. Moreover, the brokerage houses and merchant banks additionally provided margin loans, which later proved to be another destructive tool for the general investors.

Everything was going well but suddenly the market collapsed at the end of 2009 and continued with the declining trend throughout 2010 and 2011. A large number of investors were completely ruined and many were financially hit so badly that they could not recover till now.

Looking at the history of the stock exchange in Bangladesh, we will find that, it has made negative impact on the general investors again and again. The gamblers, the listed companies and some influential institution were benefited but the loss was completely on the investors’ part. The government had taken several steps but that did not help the general investors much. Rather that closed the opportunity to draw significant profit for the company. But that is not the case for the companies who are listed or willing to be listed or even for the merchant banks.

There exist several regulatory authorities who monitor, control and regulate the stock exchange and its operations directly or indirectly. The main regulatory authority is Bangladesh Securities and Exchange Commission (BSEC). Other than that, Bangladesh Bank and Ministry of Finance itself also plays an indirect regulatory role. These institutions are supposed to work for soliciting the general investors’ interests. In spite of their strong existence, it feels like they play a very small role for general investors.

When we enter the site of Dhaka Stock Exchange (DSE) or Chittagong Stock Exchange (CSE) or BSEC, we find a notification addressing the investors regarding the risk associated with investment in securities market. It says something like; ‘Investing in share market is risky. Invest carefully.’ It is a way of saying, ‘Look before you leap’. Is this notification something like the cautionary note on the packet of cigarettes: ‘Smoking causes cancer’ or ‘Smoking can cause death’, where the manufacturer or the caution-provider tries to only offset their liabilities to the harm of the users? Will investors keep losing in the market?

A company gets enlisted in the market to generate funds for the expansion or development of their business. The funds are mostly generated from the general investors, making them entitled to the profit or loss of the company in business. The regulatory authorities are liable for checking the background of these companies before they are enlisted. They need to check if the company is performing legitimate business, if the accounts and financial data of the company is accurate and maintained in a transparent way, if the company have enough assets or earnings to back up for the investment of the new investors etc. After checking all these facts and figures a company is supposed to get the final permission to be listed.

For years after years, we have seen companies, with no actual financial strength, got enlisted in the market. investorsFew of them were listed with very high premium and swept the investors’ money away. The companies initially came to the market with a boom but could not sustain the hype and lost its value drastically in the market. The investors could not get a return from the market as the company did not declare dividend, could not draw profit and declared a negative Net Asset Value. The investors had no other way but to look at the dropping price of their company’s shares.

Md. Jamirul Hoque, a long time investor at the securities market, has been the witness of several ups and downs at Dhaka Stock Exchange. He said, “From the 1990s, the stock market has faced 3-4 major storms which took the money away from the investors. Each time, after an analysis was done, some policy faults of DSE or the regulators were identified.”

“Many investors were ruined; few even committed suicide losing everything and the authorities look for excuses. Still the fault in policy and system still exists and the market in recent times is behaving like an economy at depression,” he added.

He also said that, “To improve the national economy, the government should put more focus to the welfare of the securities market. The market must be made more investment friendly and the investors should be provided with honest, transparent and hassle-free investment environment. Otherwise, it is very tough for the old investors, who are still in the market, to cover their losses and for the new investors to bring any meaningful return on their investments.”

From the start of this year, we have observed an unusual depression in the market. The index kept declining to an alarming position though during the last few days, it has performed slightly better. The market reacted a lot to the negative news and reacted low to the positive ones. Movements could not be anticipated with technical or financial analysis. And ultimately, the general investors were heart-broken. One noticeable thing was the enlistment of several companies during the first five months of the year. IPO kept coming continuously and consumed huge fund from the investors. But none of these listed company initially performed even close to the anticipation of the investors. Now, with all our economic standards flying high, what is it holding the market down? The government should give attention here.

We could have spoken about different sectors but rather will put our focus on banking sector only. The banking sector is performing very low. There are several rumors of policy reform and government’s scrutiny over the banks and anti-money laundering policies, which are several times mentioned as the reason behind poor performance of this sector. But what is the look and feel of these banks?

The top management of the bank is still getting highest salary of the country (may be the highest among many countries), the bankers are also drawing a very handsome amount, banks are increasing their spending on CSR and branding, millions of taka is unpaid loans  sanctioned mysteriously but the banks are still hiring and maintaining their standard. The owner directors are also having a lavish life if not linked with an exposed corruption. Everything is going fine and the general investors are the ones who are paying for whatever is not going fine.

The general investors are owners too but they do not have any decision making power. They have to count their profits after all misspending of the company. Moreover, they are never shared the actual profit. If they were, the dividend payout would have been much higher. After the adjustment of face value (a policy reform of stock market), the dividend provided by the banks this year does not put any significant value. For example, One Bank Ltd. provided 25% dividend this year (12.5% Cash and 12.5% Bonus Shares), a gain value of Tk.2.5 against the face value of TK.10. But the price was adjusted in the market as such that the investors lost Tk.2 after the adjustment. So, this sort of dividend is not helping the investors at all.

Many companies are suddenly declaring no dividend like; many insurance companies this year. But the reason behind ‘no dividend’ is not clear to the investors. On top of the dividend loss, the news of ‘no dividend’ brings the share price down drastically, leaving the investors ruined.

The regulators and authorities now seem to be more focused on the acts of the investors or the brokerage houses. They are keeping an eagle eye on them but that will not help to sustain the endangered species called the general investors. The authority and regulators should be more focused on the actions of the listed company. They have to make sure the companies pay regular dividend reflecting the real performance of the company. They have to make sure that the general investors are not the last priority to share profits and first priority to share loss. They also have to make sure that none is being lavish ruining the family of an investor.

We hope the regulatory authorities will be completely focused on protecting investors’ interests because without the investors there will be no share market. We hope they will ensure the right of the investors over the listed companies. We hope the regulators will create feasible and prospective investment opportunity for the investors and will ensure an investment friendly environment.

The article was first published at The Daily Observer.

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