by Ahsan Habib in The Daily Star, Jun 9, 2023
Corporate and foreign investors may further lose interest in the stock market of Bangladesh as the country has dropped a notch in the Moody’s Investors Service rating system.
As the domestic stock market already lacks investment from corporate and foreign investors, this downgrade will further add to its woes, according to market analysts.
Whenever a country slips in Moody’s rating system, then the stock market of that country also falls.
However, the trend is reverse in Bangladesh mainly because local investors’ lack knowledge on the financial implications of global developments, according to Prof Mohammad Musa, dean of the business faculty at United International University.
On May 30, US-based global credit rating agency Moody’s Investors Service downgraded Bangladesh’s sovereign rating by one notch to B1 from Ba3.
After that, the DSEX, the benchmark index of the Dhaka Stock Exchange (DSE), rose by 7 points in as many trading days to reach 6,352 points.
“But actually, the index is already at a low level, so how can it fall further?” he said.
Still, the downgrade will impact the portfolios of foreign investors as they feel shaky about investing in a country when its credit rating falls, Musa added.
He went on to say that the correlation between the country’s financial sector and the credit rating system should be improved so that any changes in the latter will immediately impact the local market, as is the case in developed nations.
For example, a country that drops a level in Moody’s rating would likely see its financial sector increase interest rates in a bid to lower the risk of lending amid decreased liquidity.
On condition of anonymity, a top official of a leading brokerage house, said the participation of foreign investors is still low as they suffer from a confidence crisis.
Foreign investment was in the negative for almost every month in the last four years. The situation was so dire at one point that foreign investors’ turnover in the stock market plunged to a decade-low of Tk 87 crore last March, as per DSE data.
“And now, the lower rating will further dampen their confidence,” Musa said.
Besides, institutional investors, particularly corporate houses, may become reluctant to pour funds into the stock market while the cost of listed companies could also rise, he added.
Echoing the same, Md Sayadur Rahman, president of the Bangladesh Merchant Bankers Association, questioned how it could be possible for the index to drop further seeing as it remains at the bottom level.
Likewise, Richard D’ Rozario, president of the DSE Brokers Association of Bangladesh, said the lower rating has had no impact on local investors as they rush to invest based on rumours rather than fact.
Additionally, the floor price mechanism in place prevents the index from dropping past a certain point. But still, the downgrade is bad news for the market as it may impact the decisions of foreign investors.
At the end of July last year, the Bangladesh Securities and Exchange Commission set floor prices for each stock to halt the freefall of market indices amid global economic uncertainties.
The floor price was decided by averaging each stock’s closing price on July 28, 2022, with the preceding four days.
“So, the market is not being impacted with the bad news,” Rozario added.
On March 1, Moody’s downgraded Pakistan’s sovereign credit rating to Caa3 from Caa1.
After that, the KSE 100, the prime index of the Karachi Stock Exchange, dropped 3.5 per cent, or 1,460 points, in the first one month.
https://www.thedailystar.net/business/economy/news/imports-keep-falling-amid-lingering-dollar-crisis-3341466
