Why is stock market losing its shine?

Once upon a time people were enthusiastic and patiently waited for hours in queues to deposit their IPO application fees for lottery subscriptions.

During that era, investors who were allotted subscribed shares often gained substantial profits without facing significant investment risks in the primary market.

However, recent years have brought about significant changes, and in the present day, general investors show little interest in applying for IPOs due to the meager capital gains from such applications.

Over time, the number of active BO (Beneficiary Owner) accounts has been experiencing a worrisome decline. As of January 1, 2023, Central Depository Bangladesh Limited held a total of 1,861,722 active BO accounts. Yet, within a mere nine months, the total number of BO accounts witnessed a decline of 111,137, accounting for approximately 6.34 percent of the total BO accounts.

Surprisingly, the statistical data shows that female participation in the market is relatively low, comprising only 25 percent of the total BO account holders.

In practical life, we have observed that primary market investors often switch to the secondary market once they have realised some profits through their IPO subscriptions. However, in the current landscape, IPOs no longer offer the same level of attractiveness for investment. Consequently, there has been a sharp decline in the opening of BO accounts, and this decline is mirrored in the struggle to attract new investors to the secondary market as well.

The Bangladesh Securities and Exchange Commission (BSEC) is currently organising road shows in countries like the US, UK, Switzerland, France and Japan with the aim of attracting foreign investors to the local bourses. However, the foreign trading contribution to our bourse currently stands at only 4 percent to 5 percent of the total turnover, and this figure has been declining due to the instability of the foreign exchange market. So, I think we need to focus more on local market investors rather than seeking foreign investors while targeting new potential investors. To address this issue, it is essential to bring stock brokerage services directly to people's doorsteps, making it more convenient and accessible for a larger number of individuals to participate in the market.

Compared to the last decade, a significant number of people have become more affluent due to an increase in per capita income and individual earning levels. However, there is a concern that these increased savings are not being invested in the stock market. One possible issue is the lack of accessibility to stock brokerage services, as many educated individuals remain uninvolved in this industry due to fear, ignorance, or a lack of knowledge about the potential benefits of investing. In general, people's perception of the stock markets remains shaky following the collapse in 2010, and the market's image still has not recovered, which has eroded confidence among those who lost their investments.

The regulator (BSEC) should work on building confidence among investors through good governance and strict compliance, ensuring state-of-the-art technological advancements with advanced cybersecurity measures. Additionally, transparency in market operations and clear communication of regulations and policies are crucial. Regular financial literacy programmes for investors can demystify stock market complexities and empower potential investors with the necessary knowledge. Strengthening investor protection laws and ensuring swift legal recourse in case of malpractices can further enhance trust in the market. If we can implement all these strategies in our stock market, the market will shine again soon.

Views are personal. The author is the Head of Operations and Compliance at UniCap Securities Limited. He can be reached at shahriar@unicap-securities.com.