INSIDERS' ACCESS TO INFORMATION

The next best way to make money in
the share market

Share Shah

All of us know the best way to make a huge profit in the stock market is to have inside information. By having such information is a sure way of making gains. But the fact is that access to such information can only come from insiders who are barred by regulations to disclose them. But let me assure you insider dealing is rampant and more common in large financial institutions than in manufacturing companies.
   Banks and financial companies have large staff and substantial involvement in the stock market; thus information on what is happening is spread both horizontally and vertically. Everyone connected gets a chance to make some money usually through a surrogate partner, family and friends.
   Now some of these financial companies have moved a step upwards. To be gross one may state that they have started manufacturing substantive data which would influence the price of the share on the stock exchange. Step one of this scheme is to find something to allure the investors. Take for instance the story that has been made up by at three private commercial banks. These schemers have just announced that that certain asset has been revalued subject to the confirmation by the Bangladesh Bank. The central bank takes months to confirm or otherwise disprove the ridiculous act of revaluation of chairs and tables or for that matter any property. The analyst looks at increasing valuation without looking at the reality that this absurdity will not tell on income. But meanwhile on the exchange this information will result in scaling up the share price and the bright insiders will be able to get rid of some more stock in these trying times.
   There are many small and medium investors who have no access to inside information or any ability to influence the board of predators whose full time job is how to play the market and make some more. What do these poor people deprived of equal opportunity do? Well these maverick investors have at long last found their forte which is to follow the rainbow. The next best thing is if you cannot make information follow the information. That is what the mom-pop investors do, follow the bubble. Each day the stock exchange reports on the top ten or twenty heavily traded scrip. Actually these should rename as top bubbles of the day.
   There is so much talk about the bubble in the stock market or the bubble in the housing market etc. What really is a bubble? Well bubble is like inflation. When too much money chases a few shares, the prices go up and eventually they reach very high level and like a balloon the bubble burst of too much hot air. In economic theory bubbles has to do with the performance of security prices. Strictly speaking "the concept states that security prices of a given group of securities will go through a phase in which the price will rise rapidly and high above the value that is indicated by past performance and current market condition. Following the rapid upswing in price, the share will achieve a point where this bubble bursts and the security price goes into a period of rapid descent."
   Take for instance what happened last week in an IPO listing of National Housing. These shares were offered at a par value of Taka 100 and as is expected was generously over subscribed because the maverick mom pop investors have this IPO business and no other way to make a fast buck. To cut a long story short this IPO started trading at Taka 950 on the first day and gradually started declining over the week, but not to the level it should have because of the regulatory framework which anchors the free fall. The early birds who got these shares made a profit of Taka 42,500 on an investment of Taka 5000 in a period of about four months.
   IPO's are a great way to make money in the short term and therefore is the reason why so many persons are involved in making fake and surrogate applications. Some issuers believe that they are not getting the right price for their shares and are therefore demanding the book building approach. But the fact is that the bubbles play a large part in our market. People go after bubbles because bubbles give them opportunity to make windfall gains. And thus the search for the 'silver bullet' remains the foremost way to describe the pathway of the stock market. If anyone thinks that National Housing is worth any where near the starting value on being listed than one has to only check the litigation list of the company in order to discover that perhaps the par value was too high a price to pay for its shares.

^ TOP OF THIS PAGE ^ MAIN PAGE

BB to face crisis in income generation

Holiday Report

The decline in the central bank's income from the investments abroad is likely to be a big concern for the finance ministry.
   The finance ministry has set a target to receive Tk 3,426 crore or more than 25 per cent of the total non tax revenue worth 12,593 crore in the current fiscal budget from the head of 'dividend and profit'. A substantial part of this money is expected to generate from the Bangladesh Bank's income
   Meanwhile the finance ministry will have to consult with concerned officials of the Bangladesh Bank (BB) and assess the shortfall that the central bank might face in the current fiscal.
   The officials of BB has already identified that the global financial meltdown has affected its income following the withdrawal of its investments in international banks.
   The central bank of Bangladesh has earned a record profit of Tk 2,500 crore in the last fiscal ended on June 30, 2008 and more than 72 per cent of the earning was given to the government exchequer. But the BB income from investments in foreign banks and financial institutions has become almost nil after those were withdrawn following the onslaught of the global financial crisis.
   Almost 90 per cent of Bangladesh Bank's investment has already been withdrawn from the international banks, according to central bank sources. The country has a reserve of more than US$ 5.5 billion and a substantial portion of it was invested by the central bank in international investment banks operating mainly in the European countries.
   Many US and European banks have already been hit by the worst global recession facing closure and urgently trying to get bailout package from their respective governments.

^ TOP OF THIS PAGE ^ MAIN PAGE

Holiday Report

The lower price for raw hide and skin as fixed by Bangladesh Tanners Association (BTA) on the eve of the Eid-ul Azha, has been seen as a fortune for the leather industries.
   The religious occasion to sacrifice a large number of cattle-head has provided a scope for a good business after collecting hides and skins at a cheaper price during the Eid festival. The businessmen could procure their targeted quantity of around three million pieces at low prices during the festival.
   Businessmen collected local raw hides and skin at Tk. 30-35 per square foot during the last month's festival, which was half of the prices on the previous occasion. However, seasonal businessmen suffered substantial losses in the trade of raw hides and skin this season as they purchased them at higher prices and sold at lower rates to the tanners.
   BFLLGEA's initiative
   Meanwhile, the Leather Goods and Footwear Exporters' Association (BFLLGEA) has taken an initiative to launch special drives to expand market abroad. A number of reputed European and Asian shoemakers, which were in negotiations with local entrepreneurs to purchase the country's small and medium-sized shoe making factories were also encouraged by the lower prices of raw hide and skin.
   To reap the benefit of lower rates of raw hides and skin along with the opportunities of cheap labour and privileged market access a good number of international shoemaking companies are keenly working to purchase the country's small and medium size shoe making factories and establish joint ventures.
   Many global shoemakers are also relocating their factories to Bangladesh from other Asian countries like China, Vietnam, Hong Kong and Cambodia to have access to the country's abundant supply of quality leather.
   Bangladesh exported leather and leather goods worth $ 284.41 million in fiscal of 2007-08 and its target for the current fiscal is $ 304.32 million.

^ TOP OF THIS PAGE ^ MAIN PAGE