BB warns stock market investors of ‘huge losses’

Bangladesh Bank, in the wake of the recent surge at the capital market, on Sunday warned that the general investors would face massive losses like they had suffered in the previous incidents if proper monitoring was not enforced.

‘An effective monitoring by the regulatory body would be required during the ongoing recovery process from sluggishness that has been prevailing since 2010,’ said Bangladesh Bank governor Fazle Kabir while unveiling the new monetary policy for the January-June period.

‘If an effective monitoring remains absent, the small investors lured by huge surge in stock prices in recent period may face massive losses like they had witnessed in the past (1996 and 2010 market crashes),’ he said.

The Bangladesh Securities Exchange Commission has taken expected initiatives like giving a bunch of suggestions for investors and launching financial literacy programme for small investors.

He also said imposing sanctions in purchasing shares with margin loans by sponsors and shares with high price earnings ratio would be accurate.

The central bank has already taken initiative so that banks keep their capital market exposure within the limit in accordance with the act, he said.

‘Banks and non-bank financial institutions will have to strengthen their monitoring so that their clients will not divert loans to the capital market. The clients will misuse the loans by investing those in the capital market for gaining abnormal profit,’ Kabir said.

Former interim government adviser AB Mirza Azizul Islam told New Age on Sunday that BB governor’s speech about the capital market was right and it was not harmful to the market.

‘It is not rational if the benchmark index of the capital market falls due to the governor’s speech,’ he said.

Some of the investors may misleadingly think that the stance of monetary policy is contractionary, he said.

Kabir came up with the remarks following the recent bull run at the stock market that resulted in more than 1,100 points rise of the DSEX in last one and a half months, raising concerns about overheating of the market.

Following the nonstop surge in share prices, the BSEC expressed its concern at a meeting held on January 16 and asked stakeholders of the capital market to strictly comply with securities rules in trading shares.

The regulator also provided a list of rules and regulations to the participants at the meeting and asked them to comply with those strictly to prevent any sort of unstable state at the capital market.

In January, Bangladesh Bank tightened banks’ capital market exposure monitoring amid the recent bull run. 

source: Newage