The Z category stocks, commonly known as junk shares for their poor performance and high risk, have surprisingly been flying high on the Dhaka bourse.
Most of the firms representing the stocks have seen losses pile up and there is no sign of recovery in the foreseeable future. These organisations have failed to pay dividends for years.
Some of the companies have not been in operation for years and avoided making any earnings disclosure. Still, their stocks have been soaring at a time when the overall market is subdued.
The Dhaka exchange witnessed erosion for the sixth straight session on Tuesday. On the day, four among the top 10 gainers on the prime bourse were junk stocks.
A company’s stock is categorised as junk when its commercial operation has remained shut for six months in a row or when it has failed to provide dividends for two consecutive years or failed to hold an annual general meeting timely.
The price appreciation of the junk stocks gives a message that market manipulators are still active in the secondary market despite stricter punitive measures by the newly-formed commission against wrongdoers.
Analysts suspected that speculative trading and short-term profit motives might have fueled the rallies of the junk stocks, as no major changes in fundamentals were visible in most of the companies concerned.
Yeakin Polymer, for example, whose stock price soared 16 per cent in just three days to Tuesday, turned out to be the day’s top gainer on the Dhaka bourse. It had incurred losses for the four years to FY24 and failed to declare any dividend since FY20.
Yeakin Polymer’s business collapsed in just two years after the listing. It raised Tk 200 million by issuing public shares in September 2016.
The business sank into the red prior to the pandemic. It defaulted on loans taken from Islami Bank, according to its auditor.
Despite the grim performance, the stock jumped an astounding 51 per cent in just two months to Tuesday without any disclosure of price-sensitive information.
Similarly, the stock of Mithun Knitting surged 9.10 per cent, Jute Spinners’ 8.75 per cent, and Regent Textile’s 6 per cent on Tuesday on the DSE although their business operations had remained suspended.
Another poor-performing company, Safko Spinning surged almost 50 percent in the two months to Tuesday; its factory has been closed for more than a year.
“Without manipulation, price escalation of the junk stocks is not possible,” said Md Sajedul Islam, managing director of Shyamol Equity Management.
Meanwhile, investors continued to prefer profit taking and adopt a conservative stance ahead of the upcoming earnings and dividend declaration season.
The DSEX, key index of the Dhaka bourse, lost 28 points or 0.53 percent to 5,315 on Tuesday. It suffered erosion of 221 points in the past five sessions while the market cap shed Tk 67 billion.
The DS30 index, a group of 30 prominent companies, also lost 15 points to 2,051 and the DSES Index, which represents Shariah-based companies, dropped 9 points to 1,152.
The Chittagong Stock Exchange also ended lower, with its All Share Price Index (CASPI) losing 85 points to 14,940, while the Selective Categories Index (CSCX) fell 53 points to 9,164.
Source: The Financial Express
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