Nironjan Roy:

Last month Finance Minister AHM Mustafa Kamal openly called upon the capital market experts to come up with policies that will help improve the equity market. The finance minister deserves appreciation for his open invitation to the country’s capital market experts which indicates that the government is serious about development of the country’s capital market. Now we have to wait for the response from capital market experts and thinktank who mostly blame the government for downturn in the country’s capital market. To what extent these policies, if submitted and implemented at all, will produce benefit to the country’s capital market remains to be seen. However, our experience does not reveal any positive outcome. Since first stock market crash in 1996, country’s capital market has undergone through massive fundamental and structural changes with automation, demutualization, capital market’s capacity building, strengthening and empowering capital market watchdog, bringing diversity in the market with involving financial and non-financial institutions and enactment of innumerable rules and regulations. Nevertheless, the country is far from a sustainable capital market. So, it is very difficult to be optimistic about the finance minister’s new move. Mere policies and measures whatever in nature is undertaken will not produce any tangible result unless investors’ and market players’ mindset towards capital markets is changed.

Concept of improving capital market: In our country there is misconception among the investors and market players about improving the capital market. Most people believe that the capital market especially stock market means stock index will persistently move upward with continuous rising of share prices. But this is not the usual feature of the stock market; rather cyclical ups and down are the common features of the stock market anywhere in the world. In fact, stock market is the place where bull and bear live together and when dominance of bull and bear by turn remains within tolerance magnitude, market is termed as behaving reasonably but when bull and bear exceeds the tolerance boundary, market is defined as experiencing either boom or crash. Whatever is the consequence, the stock market will periodically move through rise and fall whereby some investors will gain while others will lose. Theoretically stock market movement is believed to be caused by the country’s economic growth and fundamentals of listed companies, but practically this market is extensively influenced by speculation. Therefore, the secondary capital market is categorised as a speculative market all over the world. During the last one and half year, the global economy has remained standstill without any clear picture of comeback when normalcy will be restored and such uncertainty must have been reflected through a downward trend in the world’s largest stock market what actually did not happen. Instead, stock market indexes in almost all international financial markets are skyrocketing, the reasons of which are beyond the knowledge of common investors. So, perception of improving the stock market with only an upward trend has to be removed from the mindset of investors and market players. Instead, an improved or sustainable stock market can be ensured by minimising malpractice, manipulation, irregularity viz a viz by severely punishing the violators in the market. It may be mentioned here that no stock market in the world is free of manipulation and malpractice, so keeping such unusual activity as minimum as possible standardised capital market. Even strong regulatory measures, effective oversight and stringent punishment to the violators can ensure a sustainable or matured capital market. The US stock market is known as the best capital market in the world because the SEC has supreme authority. Their tough supervision and extremely stringent punishment to the violator has raised the bar of this stock market in the world. So, our policymakers should focus in this area and thus ensure a sustainable capital market instead of trying to keep the market always rising.

 Different stakeholders and different policies: It is very unlikely that all capital market experts and thinktank will come up with consistent and relevant policies taking common interest into consideration. In the capital market, there are multiple stakeholders who among others include small investors, large investors, institutional investors, issuers’ group, broker-dealers group, merchant banks, commercial banks, and non-bank financial institutions. Country’s capital market experts and thinktank directly or indirectly represent different stakeholders who have different scope, objective and purpose what will covertly or overtly influence them in preparing policies for submission to the govt. It is unlikely that all stakeholders will reach consensus on some common policies. Under this situation, even if capital market experts submit their policies, the Finance Ministry will face tremendous difficulty in compiling and consolidating the policies likely to be received from different expert groups and thinktank representing different stakeholders. So, the finance minister in spite of having strong intent will not be able to move with his new initiative.

Own policies are good enough: Bangladesh Securities and Exchange Commission (BSEC), Dhaka Stock Exchange and Chittagong Stock Exchanges have been strengthened during the last two decades. Many high-level professionals with expertise in the capital market have been performing in this market. Besides, many highly qualified financial professionals have been playing the role in other areas, especially in Merchant banking. So, there is no lack of policymakers in the various segments of the capital market and they can come up with specific recommendations if needed at all for ensuring a sustainable capital market. The government is required to provide policy support and allow BSEC and Stock Exchanges to play their due role in protecting investors’ interest. Specially, transparency and accountability of BSEC’s officials is the key factor in ensuring a sustainable capital market. Wrongdoers and deliberate attempts to disturb the market must be eradicated. At the same time, listed companies must be brought under strong monitoring so that the company’s performance is truly reflected. Strict supervision, surveillance and stringent enforcement without any bias can ensure fair play in the capital market which eventually establishes a sustainable market. Too many policies without implementation/ enforcement do not produce any tangible result.

Some fundamental changes: In spite of having adequate policies, strong supervision and stringent enforcement, some fundamental changes in our capital market are inevitably required for overall betterment of the country’s capital market.  First of all, the stock market must be taken out of the grip of daily traders. During the last twenty years, the market’s depth and periphery has undoubtedly increased manifold, yet the daily traders’ influence still dominates the market condition. Market conditions must be structured in such a way that the day traders have no or very minimum influence in the market condition. Wealth management concept should be introduced so that investors find this place as an alternative source of earning instead of the place of being rich overnight. All market experiences some retail and day traders who are found to be very well-off, extensively experienced and strong resilient, so they can easily withstand the gain or loss resultant from their investment activity. This kind of trading is not appropriate for ordinary investors whose investment must be channeled through wealth management approach. All investment banks will offer various investment products which may be categorized as (i) steady growth or low risk product, (ii) balanced growth or medium risk product and (iii) growth or high-risk products which will be offered to the investors based on their risk appetite and risk tolerance. Investment through risk and return based wealth management products will not only protect the small investor but also provide steady income on their investment. One of the most important features of this investment approach is that small investors do not wipe out from the market, rather sustain even in the massive crash of the market. However, the main disadvantage is that this approach cannot be used as a means of being rich overnight through speculative gain. This investment approach may apparently seem to be difficult but actually not, as it can be introduced and made available in the market with some policy changes and support from the government. However, abundance of bond instruments or alternative secondary bond markets is one of the key elements of establishing wealth management opportunities in the capital market as the constitution of steady growth product, balance growth product and growth product includes a sizable quantity of fixed income securities.

The writer is a CPA, CMA, and a banker, Toronto, Canada