The inventory market regulator has determined to increase lending amenities to traders to purchase shares when the index is at an all-time excessive regardless of criticism from analysts in opposition to lending-based investments on the inventory market.
Buyers can now borrow as much as 80% of their funding within the inventory market if the benchmark crosses 7,000 factors and stays beneath 8,000.
Beforehand, traders have been allowed to take out a mortgage of Tk 80 in opposition to an funding of Tk 100 if the benchmark remained beneath 7,000 factors.
For the durations when the index exceeded 7000 factors, the borrowing capability was lowered to 50 Tk in opposition to 100 Tk of investments.
The Bangladesh Securities and Change Fee (BSEC) has elevated the restrict and issued a directive stating that holders of inventory change buying and selling rights certificates are allowed to increase their credit score amenities to authorised purchasers on the premise of a ratio of 1. : 0.80.
“In view of the Covid-19 pandemic scenario, and within the curiosity of traders, the directive has been amended,” mentioned the BSEC.
“Normally, I don’t advise investing within the inventory market by taking out loans. Furthermore, if somebody has liquidity, solely a 3rd ought to be invested within the inventory market,” mentioned Mirza Azizul Islam, former adviser to a interim authorities. .
The remaining third is anticipated to be invested in mounted earnings instruments and actual property or gold, he mentioned.
Relating to the extension of the margin lending facility, Islam, a former president of BSEC, mentioned that many shares are nonetheless undervalued and the general price-earnings ratio isn’t that top both. , so the extension was appropriate.
Nonetheless, the regulator ought to watch whether or not the market will see one other bubble just like the one in 2010. If there’s a risk, it might be additional decreased, he added.
A senior official at a brokerage agency, preferring to stay nameless, mentioned the excessive quantity of margin loans offered by service provider banks to purchase shares was one of many predominant causes for the 2010 inventory market bubble.
So the BSEC’s resolution was not a sensible one, he mentioned.
Many funding banks are nonetheless affected by the lack of margin loans as inventory costs have plunged and the federal government discouraged lenders from promoting shares in a bear market, he mentioned.
Such a call by the BSEC will finally encourage the acquisition of shares with loans, which isn’t a superb signal for the market, he added.
The BSEC’s resolution may run counter to a central financial institution resolution, mentioned Professor Mohammed Helal Uddin, director (analysis) of the Built-in Rural Growth Heart for Asia and the Pacific (Cirdap).
The Bangladesh Financial institution despatched a letter final week to banks scheduled to submit their funding e-book every day.
This was nothing new, however the BB letter was solely aimed toward elevating consciousness, he mentioned, including that the central financial institution and the inventory market regulator ought to preserve good cooperation.
Total, the fairness market was not overvalued, so there was no concern about being granted the next credit score facility, Uddin mentioned.
A market bubble has been noticed within the insurance coverage sector, however many different sectors are nonetheless in a low place, he mentioned.
Nonetheless, political choices should be supported by factual causes and based mostly on evaluation, in order that they need to not change instantly, mentioned Uddin, a professor within the economics division at Dhaka College.
The choice to increase the margin mortgage got here when the DSEX hit 6,699 factors final Thursday, which is its all-time excessive since its inception in 2013.
Buyers panicked that they must promote shares to regulate margin lending if the index goes above 7,000 factors. The BSEC subsequently assured them with the directive that they didn’t have to promote shares.
The BSEC ought to make clear whether or not traders ought to alter shares by promoting shares if the index crosses the brink or if they won’t get additional loans on the earlier charge as soon as the index crosses the brink, a- he added.
He additionally mentioned that lenders at all times needed to supply margin loans as a result of they have been fairly liquid and straightforward to supply because the mortgage was backed by liquid shares. However traders are at enormous danger if the shares they’ve purchased face a value drop, he mentioned.
Md Moniruzzaman, managing director of IDLC Investments, mentioned margin lending was a double-edged sword.
If somebody can use it in a correct method, it might probably enhance yields. In any other case, somebody might be utterly devastated, he mentioned.
So new entrants to the market ought to keep away from loans, he added.