The stock market of Bangladesh has gone through two major boom-andbust cycles, once in 1996 and again in 2010, that have shattered investor confidence. Both times millions of investors lost their money, leading to a number of suicides. Both times the markets were manipulated and the manipulators went off scot-free. If anything, the bourses of the country proved to be riskier than gambling, while unscrupulous people made obscene money at the expense of unsuspecting investors.
It is, therefore, natural that investors should feel paranoid when it comes to returning to this market. It always starts with unjustifiable gains in share prices, tempting people to the stock market with their lifetime savings. Since the tempting continues unabated, it is harder for the small investors to restore their confidence. The stock market has become a catch-22 for the average people. They feel they may be damned if they do not invest in it. They are definitely damned if they invest in it.
The opportunities for people to invest their savings have been shrinking. The dwindling interest rates on bank deposits and diminishing returns on saving certificates leave them with no choice but to venture into the stock market. The greed factor is also involved here. People are always attracted to hopes of making more money, even if those hopes are false.
The problem is that the stock market is supposed to raise capital for new industrial ventures and their expansions. While neither is happening at a desirable level in Bangladesh, abrupt rises in shares prices should be a suspect from the beginning. But very few people seems to care for the company fundamentals. They mostly go for impulse trading, buying shares whose prices are artificially managed. Eventually, these investors are left holding the bag.
Many reasons could be ascribed to repeated exploitation of small investors. One is surely the lack of sophistication in the market. Technology was absent in 1996, but automation of bourses did not save investors from the 2010 scam. Both times manipulators allegedly worked in cahoots with some of the regulatory officials to create hype in the market and then to get away with their loot.
There is still lack of understanding about company and market fundamentals. And investors are still investing encouraged by words of mouth. It is believed that the market still has its many shortcomings and investors have every chance of being burned again.
The biggest weakness of the stock market in Bangladesh is absence of accountability. The manipulators of last two scams have gone unpunished and probe committees formed to investigate the scams proved to be no more than eyewash. There is no guarantee why investors should feel confident that manipulation will not happen again and the manipulators will not laugh all the way to the bank again.
It seems the stock market is showing the signs of revival after a long lull. To what extent that revival is real and to what extent it is yet another illusion remain unclear. The prime minister of the country herself has advised investors to be careful when they invest, picking shares not on the basis of rumors but on the basis of company fundamentals.
Stock market manipulation hurts the economy in so many ways. In 2010, it left 3.3 million investors penniless bringing unspeakable horror to their families. It also does not serve the purpose because the industrialization that is supposed to get a boost in the arm is missed as money ends up in the wrong hands. Even worse, most of this money goes out of the country. Whatever little stays in the country is spent on conspicuous consumption, thus driving up inflation.
We should seriously take stock of the stock market.