DHAKA, Jan 11, 2011 – Bangladesh\’s volatile stock market rose more than 15 percent by midday on Tuesday, rebounding a day after a plunge triggered violent clashes between angry investors and police.
The benchmark Dhaka Stock Exchange general index (DGEN) gained 1,005 points, or 15.47 percent, to 7,507 but analysts said the market could still face trouble as the bounce was led by government intervention.
The huge gain came after the market slumped 7.76 percent on Sunday while Monday\’s trade was suspended within a hour when the index dived a record 9.25 percent.
"This is a government-led rebound driven by market-boosting measures from the Securities and Exchanges Commission (SEC) and the central bank that have increased liquidity," Mahmud Osman, professor of finance at Dhaka University, told AFP.
"It is not good for the market and the question is how much of these gains will be retained," he said.
Many analysts say the heavy losses were caused in part by the central Bangladesh Bank raising the cash reserve requirement (CRR) last month by 50 basis points in a bid to tighten money supply and rein in inflation.
The bank, which is directly controlled by the government, softened its stance late Monday and urged state-owned and private lenders to buy shares to offset the crisis, Bangladesh Bank spokesman M. Asaduzzaman said.
It also relaxed rules on dealers taking out special loans to invest in the stock market.
At the same time the SEC moved to boost loan facilities for retail and institutional investors.
Many new small-time investors blamed the falls Sunday and Monday on the government and regulators.
Mohammad Masum Bepery, whose shares lost 1.2 million taka (150,000 dollars) of their value over the two days, said market swings and intervention by authorities had destroyed confidence.
"The authorities are behind this rally. They have artificially boosted share prices to save their skins," he said.
The losses led to massive street protests by investors and police used tear-gas and baton-charges Monday to disperse people chanting slogans against the government and regulators outside the stock exchange, where they set alight tyres and office furniture.
On Tuesday officers with water cannon were stationed outside the exchange to prevent a repeat of the unrest.
The DGEN rose 80 percent in 2010 and has suffered a series of falls in the past three weeks, sparking protests from investors and occasional clashes with riot police.
"I have lost half my investment. In two days, I lost 1.5 million taka out of the three million I invested," one investor, Alam, who uses only one name, told AFP.
"It is completely insane. I am going to wait and see what happens before I decide to sell my shares."
The DSE is one of the region\’s smallest bourses — capitalisation hit 50 billion dollars in early December, compared with the Bombay Stock Exchange\’s 1.3 trillion dollars — and is prone to manipulation, experts say.