RECENT TRENDS IN CAPITAL MARKET OF BANGLADESH: CRITICAL EVALUATION - - PowerPoint PPT Presentation
RECENT TRENDS IN CAPITAL MARKET OF BANGLADESH: CRITICAL EVALUATION OF REGULATION Syed Golam Shahjarul Alam Examination Committee Dr. Sundar Venkatesh (Chairperson) Dr. Winai Wongsurawat (Co-chair) Dr. Yousre Badir (Member) 1 AGENDA
RECENT TRENDS IN CAPITAL MARKET OF BANGLADESH: CRITICAL EVALUATION OF REGULATION Syed Golam Shahjarul Alam Examination Committee
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AGENDA
Objective of the study Overview of Capital Market of Bangladesh Summary of Ibrahim Khalid Committee report(2011) Methodology
Empirical examination of three problems identified by
Empirical examination of three problems identified by
Ibrahim Khalid committee (2011)
Conclusions and Recommendations
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OBJECTIVES
To
analyze and identify the reasons (Esp., regulatory rules.) for recent stock market volatility in Bangladesh.
To review the existing listing and trading rules in
Stock Exchanges in Bangladesh. Stock Exchanges in Bangladesh.
To
recommend some guidelines for better regulations to strengthen the capital market of Bangladesh.
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Overview of Capital Market of Bangladesh Overview of Capital Market of Bangladesh
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Capital Market Overview
Capital market of Bangladesh consists Securities Exchange
Commission (SEC) as the Regulator, two stock exchanges (the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE)) which deal in the secondary capital market. DSE was established as a public Limited Company in April 1954 while CSE in April 1995. Company in April 1954 while CSE in April 1995.
The SEC has issued licenses to 27 institutions to act in the
capital market. Of these, 19 institutions are Merchant Banker & Portfolio Manager while 7 are Issue Managers and 1(one) acts as Issue Manager and Underwriter.
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Recent trends of DSE General Index
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Volatility of DSE compared to other stock markets
Name of the Index Index Return (Dec’10-Jan’12)
(Dec’10-Jan’12) DSE (Bangladesh) (50%) 11% BSE-30 (India) (14%) 7.8% SET (Thailand) 55.62% 5.84% FTSE Bursa Index (Malaysia) 19.34% 4.38%
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HIGHEST AND LOWEST RECORDS OF DSE IN 2010
Lowest Values Highest Values Total Number of Trades 88288 389310 Total Trade Volume 24432104 242856735
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Total Trad Value in Taka(mn) 6238.070 32495.756 Total Market Capital in Taka(bn) 1914.046 3680.714 DSI Index 3773.76 7383.93 DSE General Index 4568.40 8918.51
DSE Top 5 beneficiary Owner (BO) Account holders in 2010 Name Total Annual Turnover (Tk. Billion )
(In Billion ) Prime Bank Investment Ltd. 676.73 9.67 IDLC Finance Ltd. 555.58 7.94 IDLC Finance Ltd. 555.58 7.94 LankaBanglaSecurities Ltd. 525.33 7.50 Trust Bank Ltd. 523.25 7.48 AB Investments Ltd. 497.33 7.10
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NEW INVESTORS WITH INADEQUATE KNOWLEDGE
Change in total Number of Beneficiary Owner(BO) Accounts in two Years
Date Total No. of BO A/C Change (+/-) 01.01.2009 1,468,500
1,419,019 (49481) 30.06.2009 1,419,019 (49481) 31.12.2009 1,920,602 5,01,583 30.06.2010 2,570,654 6,50,052 31.12.2010 3,379,719 8,09,065
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NUMBER OF NEW INVESTORS
Dramatic increase in new investors indicates that the
market might be
with naive and uninformed investors that might lead more speculation in the market.
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IBRAHIM KHALID COMMITTEE REPORT (2011)
Ibrahim Khalid share probe Committee Report (2011) identifies following broad factors behind recent capital market volatility in Bangladesh:
Primary Issue related Problems: Faulty Methods of IPO High premium for stock listing Illegal Private placement market Illegal Private placement market Asset Revaluation of Companies before listing to charge
higher premium.
Secondary market related problems: Circular trading in Secondary market Stock Split Stock Price Manipulation through Omnibus Accounts
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IBRAHIM KHALID COMMITTEE REPORT (2011)
Regulatory Failure Inconsistency in regulatory activities Supporting and legalization of unethical activities of Big
Investors
Irresponsible Behavior/Weakness in many areas Formulating policies to support market Players Formulating policies to support market Players
(Manipulators)
Lack of Due Diligence Lack of Co-ordination between SEC and Stock exchanges Allowing Financial Institutions to invest in capital market
aggressively
SEC Failed to take measure against manipulation of
Financial statements
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IBRAHIM KHALID COMMITTEE REPORT (2011)
Stock Exchange Demutualization Formulating policy for Capital Market financing by FI’s Ensuring transparency in dealing with Omnibus Accounts Prohibit share trading by some Government Officials (e.g.,
SEC, DSE, CSE, Bangladesh bank, Commercial bank
Asset Revaluation by companies should be reviewed by SEC Review the Book-Building Method of IPO Restructuring of SEC Uniform face-value of all companies Legal actions against market players/manipulators
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Empirical examination of three problems identified by Ibrahim Khalid committee (2011) Stock price “Manipulation” Stock split Stock split Asset revaluation
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METHODOLOGY
Data Sources Primary (Dhaka Stock Exchange) Secondary Sources (Publications and websites)
Analysis Technique/method
Analysis Technique/method Qualitative analysis Quantitative Analysis
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TOP 10 GAINERS OF DSE IN 2010 Top 10 Gainers of DSE in 2010
Company name-Category Price (TK) (01/01/10) Price(TK) 30/12/10) Change (%) Market Adjusted Return (%)
119.75 5099.50 4158.46 4076.99 Safco Spinning-Z 84.50 753.75 792.01 710.54 Tallu Spinning-Z 156.00 848.75 444.17 362.7 Tallu Spinning-Z 156.00 848.75 444.17 362.7 Rahima Food-B 165.25 693.75 319.82 238.35 BD welding-A 66.80 266.50 298.95 217.48 Prime Insurance-A 444.00 1584.25 256.81 175.34 Monno Staffler-A 987.25 3360.50 244.13 162.66 Sonargoan Textile-A 380.00 1288.00 238.95 157.48 Dhaka Insurance-A 812.25 2646.50 225.82 144.35 City Gen Insurance-A 474.25 1503.75 217.08 135.61 Market Return (2010) 81.47%
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STOCK PRICE “MANIPULATION” (CHITTAGONG VEGETABLE)
Stock Price of Chittagong Vegetable oil Industries Ltd. Date Price (Tk.) Change in each 6 Month (%) P/E Ratio 30-Jan-09 41.25
59.25 43.64 Nil 30-Dec-09 110.75 86.92 Nil 31-Jan-10 214.00 93.23 10.19 31-Jan-10 214.00 93.23 10.19 30-Jun-10 1590.00 642.99 75.72 30-Dec-10 5099.50 220.72 242.80 31-Jan-11 4328.75
206.10
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Market adjusted return of Chittagong vegetable oil Industries Ltd
Month Monthly price of stock Month end Index stock Return Index Return Monthly excess stock
return, α1
31/1/2009 4.13 2,649.49 32%
37% 1/28/2009 4.20 2,570.96 2%
5% 26/2/2009 3.40 2,446.92
30/4/2009 3.50 2,554.36 3% 4%
29/5/2009 3.85 2,572.18 10% 1% 9% 6/30/2009 5.93 3,010.26 54% 17% 37% 30/7/2009 5.80 2,914.53
1% 31/8/2009 8.53 2,941.28 47% 1% 46% 30/9/2009 13.50 3,083.89 58% 5% 54% 29/10/2009 10.75 3,364.26
9%
26/11/2009 10.53 4,380.95
30%
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26/11/2009 10.53 4,380.95
30%
12/30/2009 11.08 4,535.53 5% 4% 2% 31/1/2010 21.40 5,367.11 93% 18% 75% 28/2/2010 29.98 5,560.56 40% 4% 36% 31/3/2010 99.43 5,582.33 232% 0% 231% 29/4/2010 169.00 5,654.88 70% 1% 69% 31/5/2010 153.55 6,107.81
8%
30/6/2010 159.00 6,153.68 4% 1% 3% 29/7/2010 156.95 6,342.76
3%
31/8/2010 140.00 6,657.97
5%
30/9/2010 148.88 7,097.38 6% 7% 0% 31/10/2010 249.03 7,957.12 67% 12% 55% 30/11/2010 353.95 8,602.44 42% 8% 34% 30/12/2010 509.95 8,290.41 44%
48%
HYPOTHESIS TESTING OF MARKET ADJUSTED RETURN OF HYPOTHESIS TESTING OF MARKET ADJUSTED RETURN OF HYPOTHESIS TESTING OF MARKET ADJUSTED RETURN OF HYPOTHESIS TESTING OF MARKET ADJUSTED RETURN OF CHITTAGONG VEGETABLES OIL LTD. CHITTAGONG VEGETABLES OIL LTD. CHITTAGONG VEGETABLES OIL LTD. CHITTAGONG VEGETABLES OIL LTD.
Pair Paired Differences t- Statistic Degrees
freedom p-value (2-tailed) Mean Std. Deviation
Mean Lower Upper Stock Return – Stock Return – index Ret urn .2499 .526 .026 .033 .467 2.373 24 .026
As the t-statistic is 2.73 and the p-value is 0.026 that is below 0.05, the null hypothesis is rejected and there is excess market return for the stock.
Conclusion: Statistically Significant
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CAN IT BE FIXED BY REGULATIONS?
Actions taken by the regulator to alert the investors
Query to the Company Investigation of business activities Investors awareness messages Investors awareness messages Repeat of company Fundamentals to DSE Screen Legal actions against company Directors
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WHY DIDN’T INVESTORS RESPOND? Possible reasons behind this
Investors confidence Market inefficiency
Irrational market behavior
Irrational market behavior
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STOCK SPLIT AND STOCK PRICE
split are to achieve an optimal price range for liquidity, to achieve an optimal tick size and to signal the confidence of managements’ in the future stock price.
there are stock price might lead increase in stock price and trade there are stock price might lead increase in stock price and trade volume in the short term
to split stock was toward improved liquidity. High-priced stocks found to be illiquid due to the psychological reasons and transaction costs.
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List of sample of companies did stock split during 2009-2010 Name of the Company Market Capitalization (as on 02.07.2009) Market Capitalization (as on 05.12.2010) Change (%) Market adjusted return (%) NBL 17093.45 77256.42 351.9651 2.5 Pubali Bank 16979.24 57735.13 240.0337 (30) UCBL 9544.65 765099.54 7916.004
2475.00 39460.16 1494.35 4 Uttara Finance 2475.00 21859.2 783.2 240 Al-Arafah Islami Bank 6687.61 32413.54 384.6805 101 Prime Bank 15747.27 57186.03 263.1489 (30) Prime Bank 15747.27 57186.03 263.1489 (30) Southeast Bank 10584.51 45708.89 331.847 (77) NCCBL 7511.61 37404.66 397.958 (54) MIDAS Finance 1560.80 12483.34 699.8039 228 Shahjalal Islami Bank 7583.21 309117.03 3976.335 45 BD Finance 2039.68 20200.75 890.3882 273 Phoeninx Finance 1059.30 12199.52 1051.659 225 First Security Bank Ltd. 2768.41 12963.72 368.2731 (65) Aftab Automobile 2768.41 24360.48 779.9448 70
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PRICE CHANGE OF COMPANIES SPLIT STOCKS DURING 2009-2010 Stock Price before One week Stock price at the date of announcement stock price after One week NBL 533.75 626 654.75 Change in stock price (%) 17.28 4.59 price (%) SAFCO Spinning 702.00 723.00 753.75 Change in stock price (%) 2.99 4.25 Phoenix Finance 1,827.25 1,987.25 2,079.75 Change in stock price (%) 8.76 4.65
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CAN IT BE FIXED BY REGULATIONS?
Market response toward stock split was consistent
with the results found in the prior studies.
Regulator cannot restrict companies from stock
split.
Market might be overreacted but it does not
indicate any regulatory failure.
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ASSET REVALUATION AND STOCK PRICE MOVEMENT
Chainirun and Narktabtee (2008) argued that firms
revalue their assets to signal the firms’ growth prospect and liquidity improvement in order to decrease information asymmetry.
Sharpe
and Walker (2007) revealed that announcements of asset revaluation were associated with substantial upward movement in stock price and these shift in stock price generally sustains in later months.
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ASSET REVALUATION AND STOCK PRICE MOVEMENT
Name of the Company NAV per Share(Tk.) NAV Change (%) Stock Price Change during Jan’2009- Dec’2010 (%) Change in DGEN Jan’2009- Dec’2010(%) Market Adjusted return (%) Before Asset Revaluation After Asset Revaluation Libra Infusions Ltd. 438 15,667 3472 355
212%
143 Sonali Ansh Ltd. 297 2,157 626 767 555 Rahim Textile 127 785 518 641 429
212%
Rahim Textile Ltd. 127 785 518 641 429 BD Thai Aluminum Ltd. 142 566 298 185 (27) Orion Infusions Ltd. 20 101 413 357 145 Ocean Containers 13 50 296
Shinepukur ceramics 12 26 120 21 Prime Textile 300 633 110 572 360
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ASSET REVALUATION
Disclosure
asset revaluation surpluses decreased information asymmetry in the market.
Leads to increase in stock price that are very
consistent with other markets.
Regulators cannot stop asset revaluation and had
very few things to do with this.
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CONCLUSION AND RECOMMENDATIONS
Market behavior in the Dhaka stock exchange
was consistent with that of other markets.
various studies supports the rationality of this
behavior and study does not support any regulatory failure. regulatory failure.
Most
the factors identified as problem (Liquidity, new investors, Banks investment etc.) seems beneficial for the long-term development
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CONCLUSION AND RECOMMENDATIONS
Coordinated actions to restore Investor’s Confidence Capacity building of SEC Structural development of the capital market Increase supply of stocks
Educating Investors
Educating Investors
Conclusions of Ibrahim Khalid Committee need to be
reviewed in line of other markets before implementation.
Further research in this field might help us to draw
better conclusion.
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