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Yahoo! My Yahoo! Mail More Yahoo! Services Account Options New User? Sign Up Sign In Help Yahoo! Search web search Home Singapore Asia Pacific World Business Entertainment Sports Technology Weekend Edition Singapore Asia Pacific World Bangladesh stock market boom fuels dire warnings AFP - Tuesday, October 12 Send IM Story Print Bangladesh stock market boom fuels dire warnings Slideshow: Full Photo Coverage: Business & Economy DHAKA (AFP) - – A flurry of cooling measures has failed to end a record-breaking bull run at Bangladesh's main stock market, with regulators now warning of an imminent crash that could devastate the broader economy. The main Dhaka Stock Exchange (DSE) general index has hit new highs nearly every day for the last three weeks, closing at 7,480 last week to cap a 10-month bull run that has seen the index soar 65 percent. As concerns deepened, DSE president Shakil Rizvi called an emergency press conference Saturday to appeal for calm. "The market is dangerously overheated. We are begging investors: don't buy overpriced stocks -- you will lose your savings," Rizvi said. His warning triggered a sharp correction Sunday when the index plunged more than 2.5 percent -- the second largest one-day fall in nearly a decade. But the bullish mood returned almost immediately with a 1.42 percent gain on Monday. "The market is a time bomb," Rizvi said, warning of another 1996-style crash -- when wild speculation and lax regulation sent DSE stocks soaring to 3,600 before they collapsed to just 700 points. The DSE's daily turnover has doubled since the start of the year to a record 400 million dollars, with market capitalisation up 70 percent in the same period at around 46 billion dollars. The DSE is tiny compared to other regional or global markets -- the Bombay Stock Exchange has a market cap of around 1.3 trillion dollars -- but the impact of a major crash would still have dramatic consequences. The number of investors has nearly doubled in the last 15 months to some 2.7 million people, according to the Central Depository Bangladesh, which manages electronic investor accounts. Experts say most people have no idea about investing in shares. "Uninformed, short-term investors are flocking to the market believing they can make big money in a couple of months," said Reaz Islam, the Bangladeshi chief executive of New York-based LR Global asset management fund. The market is overheated by at least 50 percent and measures taken by the Security and Exchanges Commission (SEC) have proved ineffective, he said. In an ideal market, the average stock price to earning ratio should be around 15, but at the DSE it now stands at around 27. The supply of new shares has almost dried up, forcing the ever-growing number of investors to chase Bangladesh's few good listed banks and multinationals. Of 13 new issues this year, five were mutual funds, while the rest were, according to Rizvi, "weak companies" simply cashing in on the stock frenzy. "We had hoped the huge demand for shares would prompt large local or state-owned enterprises to raise money from the market but there have been no noteworthy listings," Rizvi said. In a bid to soak up excess liquidity, the SEC and the DSE have called on the government to raise capital from the share market to meet Bangladesh's growing infrastructure needs. "Unless the market is flooded with new IPOs with strong fundamentals, there is no way we can rein this in," said SEC executive director Anwarul Kabir Bhuiyan. "Prices are abnormal, the market is extremely overheated. A massive correction is long overdue," he said. But a correction will be riskier now than it was in 1996, when there were only 100,000 investors on the DSE and market capitalisation was less than five percent of the Gross Domestic Product. It is now 45 percent of the GDP. Experts warn a correction could wreck havoc on the economy, which has been growing at an average six percent over the past seven years. "Many banks, insurance companies and non-banking financial institutions are over-exposed. Many are engaged in nothing more than mindless gambling," said Mahmud Osman, a finance professor at Dhaka University. Banks can legally invest up to 10 percent of deposits in the DSE but recent reports from the central bank showed some institutions had invested up to 30 percent of deposits. "It has created an asset price bubble. When it bursts it will have a disastrous impact on our entire financial system, curbing the banks' ability to lend to new factories or finance trade," Osman said. "Things are fast getting out of hand. It's time to act or risk the catastrophic consequences of collapse." 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