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2023: A remarkable year for junk stocks

The factory of the year’s top gainer Khan Brothers is now closed, but the DSE still conducted an inspection due to the unprecedented increase in the company’s share price.

Khan Brothers PP Woven Bags, a non-performing listed firm, seemed destined for no recovery from its consistent losses over the past few years. The price of its shares had remained stagnant at Tk10 each until April 2023.

But in a surprising turn of events, the company’s share price soared rapidly and closed a staggering 676% higher at Tk103.2 on 28 December at the Dhaka Stock Exchange (DSE), compared to the previous year’s close.

Other such companies with weak fundamentals and a history of losses also joined Khan Brothers in the share price jump party, despite showing no signs of business recovery in the near future.

According to an annual review by Shanta Securities, six out of the year’s top ten gainers were non-performing companies’ stocks.

Share prices of these companies soared between 96% and 237% throughout 2023, whereas fundamentally sound stocks stayed stuck at the floor price—a regulatory measure to prevent free fall in share prices.

RN Spinning posted a 237% yearly jump in share price, Khulna Printing’s stock soared 236%, FAR Chemical’s 166%, Fine Foods’ 124%, and Crystal Insurance’s 111%.

On the other hand, Sea Pearl Beach Resorts led the loser table of the DSE, witnessing a 46% decline and emerging as the worst performer during the year. Other notable stocks with highest price corrections included Metro Spinning, Rahim Textile, Orion Infusion, Sonargaon Textile, and BD Thai Food, all experiencing losses of over 30% in share prices.

Market insiders noted that, despite regulatory efforts, the bearish market witnessed an uninterrupted surge in the share prices of these speculative stocks. Even under regulatory scrutiny, these firms’ share prices continued to climb.

The factory of the year’s top gainer Khan Brothers is now closed, but the DSE still conducted an inspection due to the unprecedented increase in the company’s share price.

Another junk stock, Khulna Printing & Packaging Limited that is a concern of the Lockpur Group, also saw abnormal surge in its share price. Its owner SM Amzad Hossain, who is also the former chairman of South Bangla Agriculture and Commerce (SBAC) Bank, escaped the country in 2021 even after the Anti-Corruption Commission (ACC) imposed a travel ban because of his misappropriation of funds.

He returned in October this year and since then, Khulna Printing’s share price has been skyrocketing despite the company being non-operational for the last three years.

The DSE carried out an inspection in Khulna Printing as well in order to find the reasons behind its share price increase.

In its market review for 2023, EBL Securities highlighted that the continuation of the floor price mechanism negatively impacted liquidity and fund flow into the market. Approximately 60% of the total market capitalisation remained stuck at the floor price, contributing to illiquidity throughout the year.

The overall investment appetite remained subdued due to a bleak macroeconomic environment, with investor participation concentrated on specific speculative stocks driven by the expectation of quick gains, the review reads.

EBL Securities further noted that investors predominantly focused on short-term gains, hesitating to take long-term positions in equities due to wavering confidence in the market’s momentum.

EBL Securities hopeful for a turnaround in 2024

The capital market is poised for a turnaround in 2024, shedding the sluggish performance of the preceding years.

The brokerage firm anticipates that the Bangladesh Securities and Exchange Commission (BSEC) may consider withdrawing the floor price mechanism in 2024.

While an immediate correction in the equity market is expected following the withdrawal, the market is projected to bounce back, and overall market turnover is anticipated to significantly improve as unlocked funds become available for reinvestment.

The prime index, DSEX, may initially dip to as low as 5,500 points if the floor price is withdrawn. But it shall eventually exceed 6,500 points. However, the index is likely to fall short of 7,000 points unless heightened investors’ participation and enthusiasm can be achieved, EBL Securities stated.

 

Source: The Business Standard

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