The stock market is an intimidating set up, even to the experienced investor. For novices, like most of us, it can seem more than a little overwhelming. Before we delve into yearly performances and the ups and downs of our own stock market, here’s a walk through the world’s largest marketplace.
First things first- shares. Shares, or stocks, are what this marketplace lives and breathes. The buying and selling of shares is the work of share markets across the globe. What are shares? A small piece of a company’s capital divided among as many buyers as the company wishes. Companies raise money to run their business this way and the people who buy these shares are known as investors. These investors are then free to buy and sell their shares to others in the marketplace, raising or toppling prices with their dealings or the lack thereof. With us, so far? Good.
The stock market is filled with two kinds of people- long term investors and short term investors. The latter buy and sell shares depending on day prices, hoping to make quick cash. This sort of buying and selling is risky and can result in more losses than gains. The former group however, buys stocks within a company it trusts, and forgets all about it. Not for a day or month, but for several years. The stock market is known to yield a return of about 10% per year, not taking into account inflation. While it may not be the same each year and some years may be worse or better than others, intelligent investors lay low enough to make a sizable profit and keep to the positive side of the historical average.
Surfing sounds easy enough until you are really thrown out to sea, and it is essentially the same for stock market surfing. Keeping track of each share or stock in each company of the stock market can be difficult for even the best brokers. Bail out? A part of the market (also known as the index) that is a representation of the entire market. Usually the market ending on a high or low usually means that the market index has closed on a high/low, not the entire market. You may have heard of America’s Dow Jones Industrial average or S&P 500. Dhaka’s stock market index is called DSEX.
In 2020, the world went through a phenomenon that was not seen for the better part of a century- a pandemic. COVID-19 raged through countries, tearing down their economies and exposing their weaknesses with a ruthless vigour. Stock markets suffered everywhere around the world as exports and imports shut down, people had to be laid off, orders got cancelled and the entire business world more or less shut down as a result. Obviously enough, a huge impact was felt on the stock markets of the world and investors everywhere were in panic. Surprisingly, however, in the whole of Asia, one small country, relatively new on the map, and not altogether without challenges of its own, was silently performing wonders.
Dhaka Stock Exchange or DSEX listed the highest yield in all of Asia. Where Pakistan showed a yield of 5.2%, India 15.5%, Vietnam 14.6%, Sri Lanka 9.5%, Malaysia 3.5% and Thailand, Philippines and Indonesia showing negative 7.1%, 8.6% and 5.2% respectively, Bangladesh showed up with a whopping 21.3%, closing on 5402 points. Notedly, this was a year of challenges. The country, like the world, had gone through a 66 day lockdown and even upon opening, was in the grips of the viral terror. Some experts attribute this success to the new Bangladesh Securities and Commissions team that was put in place in May.
What was even more surprising about the figures at which DSEX closed in 2020 was that in 2019 closing, DSEX had fallen by 17.3% while other stock markets in Asia had done relatively better. Even in the year 2020, there was one phase where the stock market had hit an all time low since 2013 and it looked like there was going to be a bloodbath. The Bangladesh Securities and Commissions team decided to put new floor prices on all stocks- in layman’s terms, this means that sellers could not sell their stocks for lower than 40% of the last traded price. Whether this may have saved the situation at the DSEX or not could not be gleaned as the market went into recess in March and only resumed again in May, 2020. Come May, however, the new Bangladesh Securities and Commissions team was in place.
Between the second and third week of June, this new rule caused a lull at the stock market and the turnover, or activity of buying and selling at the market remained below 100 crores for a total of 13 ominous sessions, hitting a 13 year low of Tk 38.6 crores in June. The investors began to realize that the new committee would not be cornered into giving way and they then began to work with the new committee and the stricter regulations they put up. The market began to do well and in August, not only did the Bangladesh stock market rise above Asia, but also performed the best in the world, with a 15.8% gain in key index, as reported by Bloomberg. Investors were gradually getting back into the game with fresh confidence on the new team and it showed in the numbers.
The new commission mentioned that they not only regulated the listed companies so that they followed pricing regulations but also kept an eye on junk stock or penny stocks. Junk stocks are those stocks that belong to small public companies and sell for very low prices. Despite trading on low prices, junk stocks have the potential to lead the index, so it is imperative to keep these in check. The new committee accepted that it was impossible to clean up the entire mess in such a short time, but that the turnaround was possible only because they acted with unprecedented resolve and conviction.
In other indexes, the DSEX had the fourth lowest price to earnings ratio, the ratio of shares stood at 19.18. The engineering sector generated the highest returns of 133.1%. General insurance stood second at 97.5%, other industries 49.8%, telecom, 49.6%, services at 44.4%, and the mutual fund sector at 38.9%.
Bangladesh has always been a resilient country. Taught well by problems associated with our low lying delta regions, our country has grown and grown up around natural disasters and calamities. A pandemic, while life threatening and lacking research, threw us off but only momentarily. The nation bounced back up fast and withstood the test of the coronavirus. The corporate world too, weathered the uncertainty well and adapted to the new normal with zeal. BSEC chair, Shibli Rubayat-ul-Islam mentioned that the committee has done well in regaining the confidence of retail investors and vowed that they will not stop the “good governance” in the capital market.