Reason behind stock market crash in Bangladesh in 1996 & 2010-11 was the overvalued junk stocks in the market. Since the incorporation of two stock exchanges- Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE)- Bangladesh has two big stock market crashes in the history.
First crash was in 1996. Second crash in 2011. The main reason behind the two crashes were overvalued market for junks stocks’ price soared the highest point.
Stock Market Crash in Bangladesh in 1996
Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) had experienced a bullish run in the middle of 1996. After that the market seriously crashed. On 1 July 1996, the market was bullish mood. The index was 967.70 points and later on 5 November 1996 index reached at 3648.75 points. Dhaka Stock Exchange started a base index of 350 points and reached at 3648.75 points on November 5, 1996.
Listed companies share prices soared abnormally high. From November,1996, shares prices started to fall. First time the market saw the crash. Base index’s points were falling continuously. In May 1999, index reached at 462 points- almost touched the base index of 350 points.
Reasons behind Stock Market Crash in Bangladesh in 1996
Over-valued market is the main reason for any stock market crash. Bangladesh Stock Market crash was not an exceptional case. All the listed companies’ share prices soared abnormally. Specially junk stocks prices became six to seven times increased within short time.
As a result, companies share prices started falling rapidly from mid-1996.When junk shares price start to increase abruptly, index also jumps up abnormally. The aftermath is market crash.
Examples of Market Crash 1996
Between July and September of 1996, Quasem Silk Mills- a listed company at that time- rose 502% high. Later its price touched at Tk5.90.
Another company named Chittagong Cement and Clinker and Grinding share price crossed over tk 18000 per share in 1996 although book value of this company’s per share was tk 134. At the time this company’s two directors- Rakibur Rahman and AS Shahudul Huque Bulbul- were the members of DSE. Although the BSEC directed them to step down from their position, they carried on as directors in the company. Source: The Daily Star
Millions of investors became penniless. Even some investors committed suicide for losing huge borrowed money. This stock market scam made a big history for present investors.
Stock Market Crash in Bangladesh in 2010-2011
In 2009, Dhaka stock market faced turbulence throughout the year because of bullish trend started to turn grim. This bullish trend was initiated for two-year political crisis during Awami League won the December 2008 polls. On 16 November, 2009, Grameenphone entered capital market. For this company, index rose by 22% over a single day.
Share prices continued to fluctuate and reached high in the middle of 2009. Later, prices started to downtrend by the end of 2009. Retail investors started hunger strike. Many of them committed suicide. This crash was almost similar to the crash in 1996.
Reasons behind Market Crash in 2010-2011
The main reasons for market crashes are overvalued market, low flow of money, political instability and institutional investors interaction. Small investors were the ultimate losers. During both of the crashes, Awami League were in power.
The turbulence was continued throughout 2010. Share prices reached higher high. Largest price fall happened in a single day since after the 1996 market crash. On 19 December, the capital market suffered a second fall.
551 Points went down on a single day. This was the largest fall in the 55-year history of the Exchange. Index crossed 8500 points in 2010, and finally crashed in the first quarter of 2011. Millions of investors lost their money. They came out onto the street blaming the speculators and regulators for the crash.
This crash became known as the 2011 Bangladesh share market scam. At present, DSE has total 22 industrial sectors which accommodate over 400 listed companies.
Avoidance of Stock Market Crash
According to Faruq Ahmad Siddiqi, former chairman of the Bangladesh Securities and Exchange Commission (BSEC), Investors should study the fundamental and track records of stocks before buying decision for good returns. They shouldn’t lure by quick gains. He also added that Junks stocks jump up and create a turmoil in the stock market. As a result, stocks price rises dramatically because of junk stocks high prices when the market soars up. Source: The Business Standard
Present Conditions of Bangladesh Stock Market
After the last crash in 2010, authority concern changed rules and regulations to control Bangladesh Stock Market. The market has enforced 10% circuit breaker that prevents the dramatically price falling. Bangladesh Share Market is doing well during the whole year in 2021.
You can learn the last year market analysis if you read the post- Dhaka Stock Exchange Broad Index Analysis. Moreover, you should learn how to invest in Bangladesh Share Market if you are a newbie.
How Bangladesh Stock Market is doing from last 3 months
In this screenshot you can see the market movement of DSE from August 2021 to February 2022. Easily you can observe that index had mixed condition–both uptrend and downtrend movement. Index touched highest 7400 points in October 2021. On 1st December 2021, index was 6857.88 and on 24 February 2022, index was 6839.44 points. Market gave opportunity for swing traders.
But swing trading success depends on how to pick stocks for swing trading. Moreover, those traders made profit who knew how to trade trend reversal. Even successful traders gain in downtrend market by following downtrend market strategies. So, last 3 months were suitable for experience swing traders.
In my writing, I always said that fear is stronger that greed in stock market. When all the investors and traders become greedy, market reaches higher high. Later, market turns back to the previous condition. As a result, market faces the crash. Stock price manipulation is a technique to increase the artificial price. Many sentiments work in stock market. So, you should remain vigilant all the time about your investment.