Bangladesh Stock Market Analysis

Topics: Stock market, Fundamental analysis, Stock Pages: 37 (13262 words) Published: August 16, 2013
1.1: Introduction

The stock market history of Bangladesh refers back to 28 April, 1954 when the East Pakistan Stock Exchange Association Ltd. was established. Formal trading began on the bourse in 1956. The trading was suspended during the liberation war of Bangladesh in 1971. Operation resumed again in the 1976 with the change in government policy. During 1976, there were only 9 listed companies with total paid up capital of Tk.0 .138 billion and market capitalization of Tk. 0 .147 billion which was 0.138 % of GDP. Since then the stock exchange continued its journey of growth. The second stock exchange of the country, the Chittagong Stock Exchange (CSE) was established in December 1995. In order to control operation of the stock exchanges and trading of stocks of listed companies, the government of Bangladesh established the Securities and Exchange Commission of Bangladesh on 8th June, 1993 under the Securities and Exchange Commission Act, 1993 .The mission of the SEC is to protect the interests of securities investors, develop and maintain fair, transparent and efficient securities markets, ensure proper issuance of securities and compliance with securities laws.

From the inception the stock market of the country was growing in a slow pace. There was a large surge in the stock market in the summer and fall of 1996 evidenced by a 197.43%, 372.30% and 370.51% increase in the market capitalization, total annual turnover and daily average turnover respectively in DSE and 506.63%, 210.2% and 615.15% increase in the market capitalization, total annual turnover and daily average turnover in CSE. DSE general index grew from 832 in January 1 1996 to 3567 in November 14, 1996 while that of CSE grew from 409.4 in 1995 to 1157.9 in 1996. The market, however, crashed in December of 1996 and the index started to decline significantly since then with the index assuming a value of 507.33 as of November of 1999, a cumulative decline of 83.44% from 1996 to 1999 with the annual rate of 27.82%, and has yet to fully recover. Investors’ confidence was significantly damaged because of excessive speculations, allegedly aggravated by widespread irregular activities. The government of Bangladesh undertook the Capital Market Development Program (CMDP) supported by the ADB on 20 November 1997. The CMDP aimed at

i) Strengthening market regulation and supervision,
ii) Developing the stock market infrastructure,
iii) Modernizing stock market support facilities,
iv) Increasing the limited supply of securities in the market, v) Developing institutional sources of demand for securities in the market, and vi) Improving policy coordination.

The policy matrix of the CMDP included 95 program measures. Central Depository Bangladesh Limited (CDBL) was incorporated as a public limited company on 20th August 2000 to operate and maintain the Central Depository System (CDS) of Electronic Book Entry, recording and maintaining securities accounts and registering transfer of securities; changing the ownership without any physical movement or endorsement of certificates and execution of transfer instruments, as well as various other investor services including providing a platform for the secondary market trading of Treasury Bills and Government Bonds issued by the Bangladesh Bank. CDBL went live with the Electronic Treasury Bills registry of Bangladesh Bank on 20th October, 2003 and thereafter started equity market operations on 24th January, 2004. It was set up to facilitate the computerized delivery and settlement of securities and eliminate to the extent possible, the paper work involved in handling the transactions and that would ensure risk-free and cost-effective settlement. Before establishment of CDBL, the delivery, settlement and transfer procedures were handled manually and were plagued by lengthy delays, risks of damage, loss, forgeries, duplication and considerable investment in time and capital. Besides, both...
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