InfoAnda - Bangladesh's stock frenzy raises fear of new crash

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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 Singapore Asia Pacific World Bangladesh's stock frenzy raises fear of new crash AFP - 2 hours 7 minutes ago Send IM Story Print Bangladesh's stock frenzy raises fear of new crash Slideshow: Full Photo Coverage: Business & Economy DHAKA (AFP) - – In a run-down office in downtown Dhaka, excited investor Mizanur Rahman has just spent his life savings of 3,000 dollars on shares despite knowing nothing about market fundamentals. Everyone in this unofficial trading room, one of hundreds across the country, is glued to a screen showing share price movements on the Dhaka Stock Exchange -- up nearly 30 percent since January. "My friends make hefty profits investing in stocks and told me I could make 20,000 per month by investing 200,000 taka (3,000 dollars)," said Rahman, a 30-year-old electrician who returned from working in Singapore last week. "Some people have said the market could crash any time, but I've been hearing about this for years. In reality, it's going up and up," he said. Rahman is one of 143,000 people who opened electronic share accounts country-wide in the first two weeks of February. The figure has officials predicting this month will break the previous record, set in October 2007, of 191,000 new accounts. But like the majority of Bangladesh's new part-time traders, Rahman has no idea what the bourse's largest listing or best performers are, what the quarterly or annual profits of key firms are, or whether a stock is overpriced. Officials say such blind enthusiasm by retail investors has fuelled a dangerous up-trend at Bangladesh's main bourse -- the general index hit a record high of 5828.38 points this week, up 28.5 percent since the start of the year. This year record-breaking highs have become a daily occurrence on the Dhaka Stock Exchange as investors overlook a series of curbs and warnings by regulators, who are concerned a crash could wipe out savings. "The market is dangerously overheated with the daily infusions of liquidity by new retail investors who have barely any idea about the fundamentals of the market," the Securities and Exchange Commission (SEC) executive director, Anwarul Kabir Bhuiyan told AFP. "We could see a massive correction anytime." He said the SEC had restricted borrowing to fund trading of shares in scores of companies, placed many stocks on watch and dished out repeated warnings. "What can we do if people don't heed our warnings? We've even received threatening phone calls telling us not to act against this bull run," Bhuiyan said. In November 1996, wild speculation and lax regulations sent Dhaka stocks soaring to 3,600 points before a crash took them to 700 points, wiping out thousands of families' savings and slowing economic growth the following year. On Thursday, in response to recent surges in the price of shares for two key listed companies, including Nobel prize winner Muhammad Yunus's Grameenphone Ltd., the SEC placed restrictions on both, effective from Monday. The move saw share prices for Grameenphone drop around 6.0 percent by close Thursday, but experts say the new curbs will not halt the bull run. "The market is going up and up, defying all logic -- this is driven entirely by rumour," said Reaz Ahmed of LR Global, a New York-based fund manager. "Real economic growth has slowed down and the fundamentals of the economy are not that strong," he said, adding that the market was "heavily overvalued" and that he expected a 20-percent correction to come at any time. Bangladesh's economy is projected to grow 5.5 percent in the year ending June 2010 -- its worst performance in eight years. Exports, the main lever of growth, declined by six percent in the first six months to December. Inflation has reached seven percent, with food inflation believed to be significantly higher. Cash from remittances -- some 10.5 billion dollars last year -- and a government amnesty which allows untaxed cash, often from bribes, to be invested in the bourse have fuelled the bubble, said AIMS fund manager Yawar Sayeed. "New investors are being bused in by brokers from rural towns to feed the frenzy," he said. "A massive correction has become long overdue. There is a very strong chance we'll have a crash, and if this happens it will destroy the lives of hundreds of thousands of people, and the scale of devastation will be worse than 1996." The legacy of that crash lives on for Khairul Alam, a 40-year-old government clerk who invested his father's entire pension of one million taka into stocks, only to see it vanish within a month. "My father never got over it. I had to work two jobs a day, from morning to midnight to support our family of eight people. My only sin is that I advised my father to buy stocks," he said. 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