New fund to prop up troubled stockmarket

September 30, 2011

The private sector has stepped in to rescue the ailing stockmarket with a ‘market stabilisation fund’ that also aims to give a new lease of life to retail investors who incurred losses.
AK Azad, president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), yesterday announced a concept paper on the fund after a meeting with private sector stakeholders, the stock exchanges and a group of retail investors.
“The purpose of the fund is to mitigate the financial losses of retail investors, especially those who trade on credit,” said Azad.
With a continuous downward trend, the portfolio values of the investors, who trade on margin loans, are declining; interest charges are increasing, and the situation is forcing many to forced-sale, he said.
The FBCCI will request the central bank to halt the interest charges against the margin loans for two years, so that the merchant banks cannot sell shares by force, said Azad, who presided over the meeting. The meeting aimed at finding ways to recover from the stockmarket crisis.
“We also discussed the market situation with the Banker’s Association of Bangladesh that agreed to give Tk 300 crore to the stockmarket. Bangladesh Insurance Companies Association and Bangladesh Association of Publicly Listed Companies (BAPLC) also assured us of support,” said Azad.
Salman F Rahman, president of BAPLC, said the fund will be similar to an open-ended mutual fund in nature and tradable on the secondary market.
“Initially Tk 500 crore will be given to the fund by all private banks, insurance companies, non-bank financial institutions, merchant banks, stockbrokers, listed companies and interested non-resident Bangladeshis,” he said.
Portfolios against the margin loans will be transferred to the fund on a voluntary basis by either the investors or the lender, or both. In exchange, the fund will issue units equivalent to the purchase value of the portfolio and also for the prevailing market value of the portfolio as premium, he said.
Investors who do not trade on margin loans can also get the unit transferring their portfolios to the fund, said Rahman, also vice-chairman of Beximco Group.
“It will leave an impact on the market in two ways. Firstly, since many different portfolios will be transferred into the fund in exchange for fund units, the net asset value (NAV) of the units is likely to rise,” he said.
Generally, lenders provide credit to the investors for purchasing fundamentally strong securities. The present economic situation is not such that any of them is performing poorly or near shutdown.
“Rather, our economic condition is very good with an assumption of a 7 percent GDP growth, 44 percent export growth and an increasing trend in remittance inflow,” Rahman added.
Secondly, the tendency towards selling of shares will stop. “Sell-offs are now a major problem in the market, as investors try to sell shares whenever the market sees an upward trend,” he said.
As the fund will be tradable in the stock exchanges, subject to regulatory approval, the unit holders will have scope to sell, if he or she wants, the BAPLC president said.
Rahman also said applications will be submitted to the Securities and Exchange Commission to grant a new licence for an asset management company, which will manage and operate the fund.

-With The Daily Star input

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