The signs of the Bangladesh Stock Market Crisis already appeared in January 2011, whilst the crisis has grown stronger until date. Can the Dhaka Stock Exchange Index manage to push higher again from Taka 4000 to Taka 6000? Let's dive into more details about Bangladesh Stock Market Crisis Outlook for 2020.
January 22, 2020 | AtoZMarkets.com - The Bangladesh Stock Market was first established in 1952 when Bangladesh was known as East Pakistan. The Bangladesh Stock Market was established due to prohibition of Pakistani Share and Securities transaction in Calcutta Stock Exchange. Currently, Bangladesh has 2 major Stock Exchanges including Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE).
The Bangladesh Stock Market has seen many ups and down throughout its journey from 1952 to 2020. The biggest shock of recent decade was the 2011 Market Crash. It was the biggest drop after creating the highest peak on DSEX at Taka 8770. After this disaster, the price has never went to retest its price high of the last 9 years.
Bangladesh's prime exchange house, the Dhaka Stock Exchange, recorded a negative index return of -17.3% among other Asian Stock Exchanges. In 2019, Dhaka Stock Exchange saw the lowest Price to Earning Ratio which stood at 12.4 by the end of the year.
Currently, the Bangladesh Stock Market has resulted in the worse nightmare for investors. Many investors lost their whole capital overnight. There has been many protests and strikes as the Stock Market declined further. Despite having regulatory bodies to control such disasters, the Bangladesh Stock Market has failed to sustain a stable momentum. As a result, investors' confidence is currently fading away as well as the liquidity of the market.
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Reasons behind the Bangladesh Stock Market Crisis?
There has been many reasons provided by newspapers, regulatory bodies and even the Bangladesh Government about the Stock Market Crisis. Currently, the 4 major and most accredited reasons behind the liquidity crisis in the Bangladesh Stock Market are:
- Soaring Non-Performing Loans = There has been a significant rise of bad debts in the Bangladeshi Bank sector. As the economy has been soaring for a few years, Businesses are struggling to pay off their debt in the given times. As per Bangladesh Central Bank data, the total of Bad loans has increased +12% by the end of 2019.
- Increased Bank Borrowing by the Government as of Poor Revenue Collection = Businesses performing poorly, is the main reason behind Government borrowings. As a result, Government revenue from Taxes are very poor to carry out the projects the Government has taken in hand to develop the country infrastructure.
- Lack of Institutional Investors = Investment Corporation of Bangladesh as well as the Banks are currently not quite interested to invest in the Stock Market. So, having lack of institutional intervention in the market Retail Traders are becoming the significant market movers.
- Negative Foreign Investments = Net Foreign Investment has dipped below 150 crores last year which soaked most of the liquidities in the market. Multinationals like Glaxo Smith closing their operations in the country lead to further foreign investment crisis in the process.
Reasons behind Investors Crisis
On the Investors and Traders perspective the Two Most Highlighted Reasons are:
- Retail Traders holds more Shares than Institutions - The main difference between Bangladesh Stock Market and Foreign Stock Market is that Most of the Shares are owned by Retail Traders. As a result, regulatory bodies cannot quite regulate the overall market situation whenever they need to. In certain situations, Retail Traders form a group of syndicates to move the market in their favor. So, Accumulation and Distribution phase of the market is not properly balanced. As a result, certain Manipulation takes place. For such reasons, new investors and traders are unlikely to invest in the Stock Market and lose their hard earned money.
- Lack of Trading Knowledge and Depending on Rumors - As per certain research made on the Bangladesh Stock Market participants, more than 70% of the investors and traders depend on the Rumors. Recently some online portals are providing detailed information about the stocks but people still depend on Rumors for their trading decisions. Bangladesh Stock Exchange Regulatory bodies as well as Bangladesh Government is trying to stop the Rumors and Manipulation for a healthy market situation since last decade. Authorities like Dhaka Stock Exchange and Chittagong Stock Exchange are providing Free Training Session for traders as well. Due to lack of trading knowledge, listening to rumors, Manipulative approach and poor risk management, almost every year investors are suffering from huge loss.
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Technical View of the 2011 DSEX Crisis
There are certain debates about Technical Analysis in Bangladesh Stock Market. Many investors think that Technical Analysis does not work as there is a high degree of Manipulation present in the market. Though it is manipulated, the Bangladesh Stock Market can be predicted with proper Market Context based analysis. Let's take a look at DSEX 2011 Crash -
image: DSEX Daily Chart 2011
DSEX has been quite stable with the Bullish trend which started on April 2009 and lasted for around 1.7 years. The price action has been non-volatile and impulsive throughout the Bullish phase but notably MACD Histograms were getting smaller. Certain Bearish Divergence started to form on November 2010 which eventually signalled a downturn. Traders unaware of the emerging Bearish Divergence held the stocks longer while the price broke below recent lower high at Taka 7700.
After the crash, the price formed Bullish Divergence while pushing lower between January 2011 to March 2011. As the Divergence confirmed with a MACD line crossover below 0.00 area, the market pushed higher impulsively towards Taka 6500. Later on May 2011, the price again managed to form a Bullish Divergence while forming a Double Bottom Chart pattern. The Bullish intervention further confirmed with MACD line crossover. Additionally, 3 Point Higher Low Reversal pattern support to pushed the price towards Taka 6500.
As per our observation, Technical Analysis along the way could have saved investors and traders to close out losing position before time. Through proper Risk Management, Discipline and Patience, Bangladesh Stock Market crash may turned into a fruitful one.
Bangladesh Stock Market Crisis Outlook for 2020
Bangladesh Securities and Exchange Commission (BSEC) and Bangladesh Government are trying to control and attract investors in the Stock Market. They are trying to attract more companies to become listed in the exchanges. Similarly, long-term investors and financial institutions to invest in the market. So that the market can regain the required stability in the long run.
image; DSEX Daily Chart 2020
In the Technical Perspective, recently the price managed to bounce higher off the Taka 4010 support area. Despite having Long-Term Bullish Divergence in place, the price has been quite ignorant to the Bullish intervention. Currently the price is residing above Taka 4400 and a daily close above Taka 4500 may lead the price towards Taka 5000 again.
To conclude, the Bangladesh Stock Market is currently going through strong Bearish Phase. As per the current Bangladesh Stock Market Crisis Outlook, the price did manage to push higher. However, the price has not broke above any significant lower highs to confirm. As the price remains above Taka 4000 area, certain Bullish pressure may occur in the current accumulation phase.
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