Stocks rebound on BSEC move to discuss liquidity with govt

Infographic: TBS

Dhaka stocks bounced back today (29 October) after a sharp four-session decline, on the back of hopes for improvement as the securities regulator plans to meet with the government to address key issues affecting the stock market, including the ongoing fund shortage.

"Fund crisis is the main problem for the stock market right now. In our meeting with the finance adviser, we will discuss how the government can help improve the situation sooner," Bangladesh Securities and Exchange Commission (BSEC) Chairman Khondoker Rashed Maqsood said at a press briefing today.

The DSEX, the broad-based index of the Dhaka Stock Exchange (DSE), surged by 2.43% to 5,017 points. It had fallen from the 5,700 level a month ago, closing at 4,889 on Monday.

"The benchmark index paused its prolonged losing streak today (Tuesday) as bargain hunters took positions on scrips based on the latest earnings declarations to avail short-term gains amid a regulatory effort to rebound investors' market sentiment," EBL Securities wrote in its daily market commentary.

Turnover on the country's premier bourse, however, declined to Tk346 crore from Tk357 crore in the previous session.

Explaining the liquidity crisis, the BSEC chairman said, "Retail investors, already impacted by the price fall, are not in a strong position to invest more. Institutional investors are leaning more toward high-yield Treasury bills and bonds.

"Our analysis shows high-net-worth individuals are less interested in stocks following the high capital gains tax imposed this year."

He added that foreign portfolio investors have increasingly distanced themselves from the Bangladesh stock market over the past few years due to unusual measures, such as the floor price and the extension of mutual funds' tenure.

In the meeting, the BSEC will recommend expediting the Tk3,000 crore sovereign guarantee to the Investment Corporation of Bangladesh, enabling it to purchase undervalued stocks. Additionally, a recent finance ministry statement exploring incentives for retail investors should help, Maqsood said.

Topics to be discussed with the government will include widening the corporate tax gap between listed and non-listed firms, reducing the tax on high-net-worth individuals' gains from listed securities, introducing a share buyback scheme for companies, and exploring smoother public listing avenues for reputed state-owned, local private, and foreign firms.

The regulator also plans to shorten the stock settlement cycle by a day, use funds from financial penalties for investor protection, find sustainable solutions to the negative equity problem in margin loan accounts, ensure compliance at all levels, make a clear announcement against unusual regulations like the floor price, and improve financial literacy for investors.

The BSEC has been consulting with stakeholders over the past two months to gather consensus on needed changes, and a task force is formally working to prepare the reform agenda.

"The country as a whole is undergoing reforms – legal, administrative, banking, and in many other areas," said the BSEC chairman. "If reforms happen across these areas, the capital market will have a much stronger path to growth."

"Foreign investors who exited the market are once again showing interest in Bangladeshi stocks as prices have fallen to attractive levels," he said.

"They want assurance that restrictive measures like the floor price will not return, and we plan to assure them of this. We are also affirming that compliance with rules and regulations remains uncompromised, as has been demonstrated over the past two months."

"Enforcing our rules and regulations will increase investors' confidence, we hope," said the BSEC chief.