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The capital market is the engine of growth for an economy, and performs a critical role in acting as an intermediary between savers and companies seeking additional financing for business expansion. Vibrant capital is likely to support a robust economy. While lending by commercial banks provides valuable initial support for corporate growth, a developed stock-market is an important pre-requisite for moving into a more mature growth phase with more sophisticated conglomerates. Today, with a !" billion economy and per capita income of roughly #$$, %angladesh should really focus on improving governance and developing advanced market products, such as derivatives, swaps etc. &espite a challenging political environment and widespread poverty, %angladesh has achieved significant milestones on the social development side. With growth reaching " percent in '$$!, the economy has accelerated to an impressive level. (t is noteworthy that the leading global investment banks, )iti, *oldman +achs, ,- .organ and .errill /ynch have all identified %angladesh as a key investment opportunity. The &haka +tock 0xchange (ndex is at a 1$-year high, however, the capital market in %angladesh is still underdeveloped, and its development is imperative for full reali2ation of the country3s development potential.
)raig %rewer (t is encouraging to see that the capital market of %angladesh is growing, albeit
at a slower pace than many would like, with market development still at a nascent stage. The market has seen a lot of developments since the inception of the +ecurities and 0xchange )ommission 4+0)5 in 1667. 8fter the bubble burst of 166!, the capital market has attracted a lot more attention, importance and awareness that have led to the infrastructure we have in the market today.
markets. <nless the local market adheres to, and effectively enforces, a standard corporate governance system, there will not be a level-playing ground for international business houses vis-=-vis local operators.
8n important aspect for capital market is reflection of fair value of scripts. This is not adequately present in the current scenario, and due to this reason the market is not receiving the attention of an important segment of investors, both foreign and local. (nvestors are perhaps depending more on speculative analysis, resulting in volatility in the market, as opposed to fundamental analysis, which could attract more stable long-term investors who are sure about their investment tenure and expectations.
%angladesh /td. 48ims5 have come up, and they are investing in research and building up stock market related credentials.
pportunities
The capital markets in 8sia are getting more and more focus with the growing corporatisation of the 8sian economies. 0astern 8sia has progressed a lot with respect to attracting western companies to get listed in 8sian bourses as well as supporting innovative instruments, and +outheast 8sia is also coming up with (ndia leading the way. )omparing the local market scenario with that of the rest of the region, %angladesh is in pretty good shape as we have most of the infrastructure in place. ?ur market capitali2ation is relatively smaller and it currently stands at 6.7 billion, which is 9ust over 17 percent of *&-. Cigher liquidity is skewed towards a handful of scripts, while a stagnant situation exists for few less profitable issuers. 8t present, the government is heavily focusing on developing a debt capital market. +uch measures are certainly welcome as %angladesh lacks a proper secondary market for bonds. The market is yet to support short-term capital requirements of corporations. )ommercial -aper 4)-5 has not yet been tried
primarily due to interest rate volatility and illiquid risk-free instruments that can be used as benchmark neither for short-term and hardly for long-term financing. (t can, therefore, be said that we have a somewhat flat yield curve in %angladesh at the moment.
&ebut trading of state-owned oil companies like ,amuna ?il )ompany /td and .eghna -etroleum /imited on the local bourses in ,anuary '$$A has spurred a lot of encouragement among investors. This initiative taken by the government to list +?0s will increase market capitali2ation and improved liquidity. +0) is also contemplating the introduction of the book-building method in the valuation of (-?@s in order to ensure a fair price within this year. This will encourage companies with sound financial health to come into the market. Degulatory pressures are mounting on telecom companies to get listed. (t is estimated that the listing of the top telecom companies will attract more foreign investment, increase the market capitali2ation by few folds, and bring about higher standards of corporate governance. There is still huge potential in the market for securiti2ation and other debt instruments like commercial papers and corporate bonds, and derivatives, which will help foreign investors, hedge their exposure.
%rregulations in #ividends" +ome companies do not hold 8nnual *eneral .eeting 48*.5 and eventually declare dividends that confused the shareholders about the financial positions of the company
!election of Membership" +ome members being the directors of listed companies of &+0, )+0 look for their own interest using their internal information of share market. %mproper financial statement" .any companies do not focus real position of the company as some audit firms involve in corruption while preparing financial statements. 8s a result the shareholders as well as investors do not have any idea about position of that company. T&'R" The concept of centrali2ation of the securities market has not been implemented that arise technical problems and political infighting. The intrinsic values for securities traded are sometimes estimated without considering the current market prices of the securities. The absence of comprehensive legal and supervisory framework. /ack of skilled manpower as well as financial and non-financial institutions involved in the securities market. The lack of proper policy framework that provides incentives and protection to investors. The dominance of bigger public sector and borrowing of public sector as well as government form the institutional sources rather than the market. !uggestions to improve the activities of !tock Market" To introduce automated monitoring system that may control price manipulation, malpractices and inside trading. To introduce full computeri2ed system for settlement of transactions. To force the listed companies to publish their annual reports with actual and proper information that can ensure the interests of investors. To control and abolish kerb market form premises of stock market.
To take remedial action against the issues of fake certificates. The composite Guotation system 4)G+5 should be introduced and implemented that available the exchange specialist bid-ask quotes to the subscribers.
To make arrangement to set-up merchant banks, investment banks and floatation of more mutual funds particularly in the private sectors.
%anks, insurance companies and other financial institution should be encouraged deal in share business directly.
The brokers should not be allowed to deal in the +cripps on their own accounts.
The management of &+0 and )+0 should be vested with professionals and should not in any way be linked with the ownership of stock exchange.
1. 8ctive market of government, municipal and corporate bonds beside the corporate bonds to create alternative investment. '. 8ll securities to be brought under )&+ within ' years. 7. 8ll ma9or infrastructure companies, specially those in power, telecommunication and energy sector are to be listed ensure to broaden the market depth with at least <+ 1# billion market cap by '$1' having daily average turnover from current level of average of 1$ to 1# million dollar to a level of "$ to 1$$ million dollar ' years. B. To strengthen merchant banks@ capacity to be more active. #. 0nsuring speedy disposal of decisions for market operation. !. 0nsuring greater degree of transparency in financial disclosure and management structure for better corporate governance.
Conclusion
To expedite the market development process, it may be a good idea to decide on certain milestones and link them to the disbursement of &evelopment )redit +upport of the World %ank. The government is making good progress in other sectors, including monetary management, corporatisation of public-sector banks and others through this linkage. The missing link between the +0), %angladesh %ank, %angladesh Telecom Degulatory )ommission and other regulatory bodies is now getting established. (ndividually, they were not serving each others3 interests, and there was no effective coordination among them, hence the country was deprived of great initiatives. 8 dedicated financial market cell at the .inistry of :inance could be formed to coordinate with these regulators as well as other ministries. (n terms of creating market depth, more profitable state-owned-enterprises should be listed. The supply of securities can be increased if the +?0s are allowed to operate through the stock exchanges. :loatation of +?0 scripts is expected to expand the market by couple of times. The %angladesh capital market still has a long way to go. The recent measures taken by the transitional government have already begun to positively impact the markets. (f more investor friendly policy reforms were to be implemented, the capital market will undoubtedly play a critical role in leading %angladesh towards being the next 8sian tiger with growth comparable to (ndia, Vietnam and the other most dynamic economies in the region.
References
*ebsite" Book" This Candout (s -repared ?nly for (nvestors in %angladesh. :undamentals of (nvestments 4)harls ,. )orrado5 www.msn.com www.google.com www.wikipedia.com www.scribd.com www.globaloneness.com www.cse.com.bd www.dsebd.org www.secbd.org