Finance Minister AMA Muhith has warned banks not to invest "call-money" borrowings in the stock market and blamed bureaucratic inertia for the failure by the government to offload shares of more than two dozen state companies.

Speaking a day after the steepest decline in Dhaka Stock Exchange's history, the minister said most shares are now overheated and the investors must have patience and think long term to make profit from the capital market.

Muhith rued despite his ministry's instructions, stakes in 26 state owned enterprises could not be offloaded by end of November - a move the government had promised in an effort to cool the market.

"We have set a 30-day deadline to offload those shares. It should not have been a complicated issue to offload additional shares of SOEs that have already been listed," the finance minister said in the capital.

"But those shares have yet to hit the market only due to mindset problem of some people," Muhith said, referring to the bureaucrats. He was speaking at the launching ceremony of `Bangladesh Institute of Capital Market' (BICM), a public-private training institute.

Dr. Mashiur Rahman, Economic Affairs Adviser to the prime minister was also present on the occasion.

The finance minister said investors need to show patience in the 'volatile' capital market. In spite of looking for short term profit, an investor needs to hold his shares to gain long term profit, he added.

His comments came a day after the Dhaka Stock exchange witnessed its steepest fall ever with the benchmark index shedding 547 points or 6.37 per cent in just 80 minutes of trading.

The fall set off angry protests by small investors who sniffed foul-play into the collapse. The demonstrations forced the securities regulator to postpone its two recent orders in mid-day and the market clawed back to end with the fall 1.56 per cent.

He also rejected the conspiracy theory swirling in the market that a vested quarter was out to destabilise the bourses, saying the capital market is now more strong and deep with the surge of new investors.

"During the tenure of this government, the number of investors has increased significantly and BO accounts now stood around three million," the minister said.

"So, I don't think that only a few unscrupulous investors can not destroy the country's capital market," said Mr. Muhith.

The finance minister said although investors often blame the authorities for frequent interventions, these orders are sometimes necessary for the greater interest of the market.

He said the PE (price-earning) ratio of most of the sectors had reached "dangerous level", meaning they are overpriced. Experts say a PE ratio of 16 is the standard for a financially healthy company.

But in the DSE - the country's premier bourse -- some companies' PE ratios including a few from the poor performing textile sector -- have even crossed 50, the minister said.

The finance minister strongly warned banks not to invest fund they borrow from inter-bank call money market into the bourses. "Banks should stop this practice", he said.

The finance minister said demutualization of the country's two bourses, which is essential to ensure market transparency, is likely to take place in the tenure of this government.

Economic Adviser Moshiur Rahman stressed the need for diversification of listed companies. He said most investors must be trained on the pros and cons of stock trading so that they can behave rationally.

The newly formed BICM can bridge the gap between new and intuitional investors, said the adviser.

Securities and Exchange Commission Chairman Ziaul huq Khondokar, Dhaka Stock Exchange (DSE) former president Rakibur Rahman, Chittagong Stock Exchange President Fokhruddin Ali Ahmed and Executive President of newly formed BICM were also present in the launching ceremony.

Former DSE president Rakibur Rahman said investment in good companies which have strong fundamentals can save the investors from market volatility.

"It is not expected that every day market will go up. We have seen that when our market plummets, investors stage wild demonstrations. It is not a good practice and I have not seen anything like this anywhere in the world.

He said supply of quality shares --both from private and public sectors -- can help stabilize the market.

In his concluding, speech Securities And Exchange Commission (SEC) chairman Ziaul Huq Khondker praised two former chairmen of SEC for their valuable contribution toward establishment of the BICM.

Among others Abdul Hannan Zoarder, Executive President of the newly formed BICM also spoke in occasion.

Largely, financed by Bangladesh Government, BICM will act as the premier provider of high quality practical education, training and assessment on the Bangladesh capital markets.

Initially, the BICM will offer short-term training course on capital market. Masters, M Phil and PhD courses also will be introduced in future. Initially, high officials of Securities and commission (SEC) will conduct those training programmes.

Source: The Financial Express, Bangladesh/10th Dec 2010