The Keeper of Investors’ Confidence

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It is not an easy process but systematic initiatives need to be taken to enlighten our investors of better investment strategies and trading techniques.

Mohammed Rahmat Pasha joined BRAC Bank Limited in 2001 as Head of Treasury and Financial Institutions. On October 1st, 2011 he was appointed Chief Executive Officer of BRAC EPL Stock Brokerage Limited. Prior to joining BRAC Bank he served The City Bank Ltd. for 8 years & Dutch Bangla Bank Ltd. for 5 years and worked in diverse departments including Retail Banking, Foreign Exchange, Remittance, Finance & International Division.

What are your comments on the current condition of the Share Market and the confidence level of investors?
There is a positive correlation between investor confidence and the volume of trade. Currently there is an upward trend which is obviously a positive sign regarding the confidence level but I wouldn’t say it is touching the desired benchmark. At the moment our turnover is around Tk. 6 billion daily, which was about Tk. 2 billion around the first quarter of this year. This volume will increase when the confidence level of investors increase. The optimal volume for sustainability of the brokerage industry should be around Tk.10 billion.

To improve the market’s performance, investor confidence needs to improve. How can we improve this confidence level?
Confidence level is a function of company performance and the overall business environment of the country. Simply put the stocks have to be performing well in the market for people to feel confident about investing in them. Companies need to be growth focused and improve their earnings. They must show consistent performance, transparency in the market and provide accurate information. People do not want to invest unless they are anticipating a good return and companies should focus on growing their business and thus meet the expectations of the investors.

What problems are foreign investors and NRBs facing when trading in the Bangladeshi stock market? How can we get more foreign investors to invest here?
There is a lack of ample opportunities for foreign investors to invest in the stock market here except for those of a few blue-chips stocks who have proper governance, stable growth and earnings. Also, it is difficult for them to trade here because of the time gap issue. When the stock exchange here is closing, the one in the US and/or in the UK is opening. We have a 6 hour gap with the UK so when their offices are opening at 10am it is already 4pm here in Bangladesh where the trading session in our Stock Market will already be closed. The government should provide incentives and regulations so that MNCs and large domestic corporates can get listed in the stock market. It will make Bangladesh more of a lucrative investment destination.
Financial reporting standards are also areas of concern for foreign investors. Discrepancies are witnessed in quarterly and full year financial statements. Settlement of foreign trading in Thursday is creating risk. Due to difference in weekend foreigners can not send settlement instruction in time. Stock Exchanges and BSEC should provide us with guidelines to solve this settlement problem.
Lastly, we are not fully presenting ourselves to the outside world. We have to convince foreign investors that we have the expertise and knowledge to help them in making the right investments. People in the market, whether NRB or not, should consult with the professionals. They should consult with them after checking their track records (to see how they have performed in the past) and then invest. If not that then the investors can hand over the funds to the professionals who will invest for them professionally with a committed return compared to the DSEX index.

Does the stock market in Bangladesh have proper institutional support?
We need more active institutional investors to support the growth of the market. Without this institutional support we cannot hope to raise people’s confidence in the market. Institutions like the banks and also the mutual funds aren’t as active as you’d expect here. Internationally, in most stable markets, this is something that is always available. When prices are falling institutions can jump in to help pick them and this is a major booster for the market. When confidence goes down it takes time for it to recover. Following the crash during late 2010, the index fell by 60% in the following three years and we are still recovering from that crisis. This process has been harder because of the lack of institutional support. We need initiatives to provide incentives to attract investment from long term investors like pension funds, endowment funds, insurance and etc.

What are your thoughts on the corporate governance and equity research guidelines in place to ensure transparency and accountability in the market?
The corporate governance of the listed companies especially that of the local companies needs to be improved. Getting access to listed companies is another major challenge. Usually foreign investors want to meet the management of the companies before making any investment decision. It is a global practice. But with the exception of a few, our local companies are not welcoming in this issue. Regulators should make some guidelines so investors can easily contact company management. In developed markets management of the listed companies need to meet with investors, analysts and the press every quarter through conference calls. Some of the equity research guidelines are fine and if we can ensure their proper implementation we will get better results.

We certainly need to improve share market literacy in the country. What kind of role can your institution play in this regard?
We, at Brac EPL Stock Brokerage, have already been continuously making efforts to make foreign investors aware about what is available in the share market here. We help them, guide them, arrange meetings for them with different company managements, give them time to time updates and then accordingly they invest.
As for locals, brokerage houses here have a responsibility to uphold. We need to develop experienced professionals who have the proper track record and can guide the customers so they don’t invest irresponsibly. Most of the indicators show positive signs for our country like foreign remittance is increasing, GDP growth is positive, inflation is being limited, Dollar Taka exchange rate is stable. However, the capital market index is not improving because of the lack of knowledge/awareness among the retail investors. Since the market is retail driven, if retailers give their funds to the institutions which have professional experience in this regard, then things will go about a lot more smoothly or they can consult with the professional before making investment decision.
Already various commendable measures have been taken from BSEC and Stock Exchanges to create awareness among retail investors. We need to continue awareness and training programs on a wider scale and eventually we will see the benefits.

What kind of power does the media presence hold in our country in regards to Share Market fluctuations?
The share market is extremely sensitive and as such it is also sensitive to any information coming from the media. The media should promote factual information and growth stories of our companies and market stakeholders. They can play a vital role in creating awareness for healthy investment practice and reduce information asymmetries and avoid all sorts of rumors on capital market related information.

What are some trading practices taking place in foreign markets which should be adopted by traders in Bangladesh?
We have a tendency for unusual return expectations which lead to over trading activities. However, foreign investors trade when it is necessary. They take their time and maybe buy shares over a span of six months slowly and think of selling those shares 2-3 years later. They look at which shares they can sell in 2-3 years time rather than thinking of making a quick profit. Their view is more long term compared to that of local traders which lets them make better return as well. Even considering the crash, the average return for investors from abroad has been approximately 28% per annum.

Why aren’t locals following these strategies?
This is the area where we, market stakeholders should focus and act to change the mindset of the retail investors. We have to change the trend of buying shares with the expectation of doubling returns in a few months and direct investors towards value oriented long term investments. It is not an easy process but systematic initiatives need to be taken to enlighten our investors of better investment strategies and trading techniques.

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