Dealing with the stock market debacle

Quite frankly, I do not anticipate a long term debacle of our stock market simply because there aren't many profits making financial mechanism available in Bangladesh. People who are holding money – may it be black or white, are bound to seek an avenue to multiply their holdings to avoid devaluation of their holdings due to currency devaluations and inflation.

Considering all the available options in Bangladesh financial systems, the stock market is the most lucrative one. Therefore, the investors will be somewhat forced to get back into the market sooner or later. After all, compared to foreign stock markets, the market in Bangladesh is still relatively stable even after the recent debacle.

We need to understand that a large sum of untaxed money has been withdrawn from the market for higher gains. Unless and until that gained amount is not siphoned out of the country, it can be reverted back into the system. And that is exactly why the presidents of our bourses were calling for a legal entry of the 'black money' back into the system, which is a logical demand that the government did consider recently.

However, one point to note is that since the government has withdrawn all tax benefits that were attached to this investment; I seriously doubt how much of the black fund would actually return into the market even if allowed. Because, once the fund re-enters the market it will come under the new rules and regulations of taxing. According to my assessment, this might also have been a major cause for mass withdrawal of funds by some major market players or manipulators.

For sometime now, the bourse presidents have been repeatedly attempting to show the stock market as an avenue or mechanism for collecting large sum of funds from the investors to develop national infrastructures. Even Professor Abu Ahmed used to be vocal about this concept not too long ago. What they are not explaining to us is that why an investor would put fund into such projects that are in line with social development activities not making any profits? How would an investment in such endeavors yield profits to pay dividends to the investors? In other words, what benefits are there for an investor investing in such projects?

Social business agenda is simply a separate matter, which is basically Dr. Yunus's new cup of tea after introduction of 'interest' based micro-loans at the root level through the Grameen Bank project in a Muslims majority country. It is the responsibility of the government to develop and maintain social infrastructures to support public lives and economic activities contributing to gross national product. They have access to funds from many different sources – local and foreign (often grants that are not to be repaid). Government also exercises imposing developmental taxes on the citizens in order to recover the development cost and the cost of maintenance through taxing utility usages and or through collection of tolls. Is our government suddenly on a cash crunch hindering such activities? Or is there really a lack of planning and will?

Stock market is a profit making mechanism and not a social charity. The government has a charitable mindset which is totally contrary to a profit making business attitude. Our bourses and all other related components are into profit making business paying remarkable sum of taxes to the government from their profit earnings. They may engage in corporate social responsibility (CSR) programs to compensate part of their realized profits into some limited social programs for public eye wash or for tax advantages, but those programs are just supplements to the governmental programs in achieving some social goals in a miniscule way.

News that drew my attention "Bourses' leaders oppose CDBL listing" published in the Financial Express on 30^th June 2011 that reveals the real reason for bog down of the CDBL IPO. To my surprise the news says that the both the bourses are opposing the IPO of CDBL shares whereas, it was the bourses who initiated the idea and pushed for CDBL IPO to come into the market to bring quality shares in the secondary capital market. And now they are opposing it?

This news shows a sorry state of confusion and dilemma of our decision makers running crucial financial institutions as well as the game of influence it has on our Security and Exchange Commission (SEC). The result of this influence is "indecision" regarding the matter which is laid on poor grounds. The ground of opposition by the bourses is based on assumptions and not on facts as pointed out by the ex-CEO of Dhaka Stock Exchange. And to make things even worse, our SEC is budging into it when the ex-chairman of SEC commented, "…CDBL could be listed after the demutualization of the country's bourses…". So, what does this really mean? Demutualization of bourses is a pre-condition for the SEC to approve CDBL IPO?

SEC must act bold and free itself from all types of political and lobby influences to work independently. Otherwise, we should keep our fingers crossed for more debacles to repeat one after another.

Same thing goes for the bourses as well. Through demutualization the bourses could attain higher accountability with a responsible and efficient management team independently functioning with full professionalism under the SEC regulations. Only then their status from 'non profit organization' could be turned into a profit making industry paying taxes to the government just like any other companies. At that point, they too could list themselves in the stock market!

Listing of a company that handles listing of other companies may sound strange but possible as the listing of a company has other motives and goals which are mainly to raise capital to achieve further developmental goals under corporate governance accountable to and scrutinized or overlooked by people holding its shares. Ideally, there is no contradiction and restriction for any company to seek listing in the capital market for that matter. In fact, it is desirable and actually good for a company to have accountable management team able to respond to any inquiries of the stakeholders maintaining an open and transparent accounting. Therefore, news like "Listing of CDBL unlikely" published on the Financial Express on 3^rd July 2011 defeats all internationally practiced business logic and fundamentals discouraging the investors who were contemplating on buying and holding shares of such a company knowing its reputation well. SEC should consider all of the points above when they sit for an 'unbiased and uninfluenced' decision based on 'facts' (not hearsay) about CDBL IPO on July 5. 2011.

The basic rule of thumb of secular politics is that the governments' moves with a charitable mindset utilizing the national resources whereas the business are motivated by greed and self gains. Striking a balance between the two groups is often difficult to achieve. The groups would always try to influence each other to take advantage of their own perceived goals utilizing their respective lobbies and influences where the power broker always wins. This is how a secular system works unfortunately and regrettably often destroying good initiatives and motives thus resulting in chaos.

Sayed Ahmad is Associate Professor with Darul Ihsan University, Bangladesh

References:

Bourses want black money inflow to 'stabilize' market: http://www.thefinancialexpress-bd.com/more.php?news_id=140904&date=2011-06-28

Use stockmarket as source of fund: bourse leaders: http://www.thedailystar.net/newDesign/news-details.php?nid=191840

Black money news drives stocks: http://www.thedailystar.net/newDesign/news-details.php?nid=192175

Bourses' leaders oppose CDBL listing: http://www.thefinancialexpress-bd.com/more.php?news_id=141070&date=2011-06-30

Construction of Mouchak-Moghbazar flyover Tk 3.73b deal signed with Saudi Arabia: http://www.daily-sun.com/index.php?view=details&type=daily_sun_news&pub_no=265&cat_id=1&menu_id=3&news_type_id=1&news_id=55446

Stock market crashes of 1996 and 2011: http://www.daily-sun.com/index.php?view=details&type=daily_sun_news&pub_no=265&cat_id=1&menu_id=3&news_type_id=1&news_id=55454

Listing of CDBL unlikely: http://www.thefinancialexpress-bd.com/more.php?news_id=141421&date=2011-07-03

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Dealing with the stock market debacle

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