Stock market: investing in losing game
The past week's worst fall that the Nepal Stock Exchange witnessed in four years could be one of the disturbing factors for the new CPN UML - Maoist coalition government in its initial days of functioning. Although the stock market carries little or negligible value in priority-check-list of the economic think-tank of both parties, it cannot be completely ignored as the fresh team in Singha Durbar works out strategy to steer Nepali economy.
NEPSE closed the three- trading day-week diving to the figure of 389.81 points, the lowest point it hit in recent years. Experts recall how it had declined to 387.59 points 53 months ago. The past week's performance represents nothing but continuity on the track of bearish spree over the period inside the stock market of the country.
What is interesting is: the poor show in stocks has taken place at a time when the country has made significant progress in tourism front. Events marking Nepal Tourism Year 2011 in various parts in the country give impression of increasing economic activities. Flow of tourists is also impressive. Nepal has been ranked at the 112th spot in the Travel and Tourism Competitiveness Report 2011, a climb up of six positions from previous point.
Historical survey of the secondary market indicates the declining trend: moving down from 1175.38 points of August-end 2008, NEPSE Index posted 729.24 in mid - December the same year. Six months later on June 16, 2009, it recorded another decline to 681.83 points. The fall continued to post 542.1 points as the year ended. The past year 2010 was no better for NEPSE: it dived to 440.49 points in May and to 424.17 points in November of the same year.
Analysts feel the latest dismal performance of NEPSE is the result of strike in industrial corridors organized by Labour Unions of different political parties including those of ruling ones. They are pressing for increasing minimum wages to 10,000 rupees. The demand is being interpreted as genuine by labour side in view of market price rise while the same is being taken as not affordable by industry business community at the present state of production.
The tendency of political parties to utilize the theme of wage as tool to secure their political power interest might complicate the problem in future. It might further damage the climate of investment in the country.
Financial explanation of NEPSE - fall is clear: more supply of shares in the market is pushing the index down. Aiding the phenomenon is the continued liquidity crisis. The rising rate of interest of bank loans is fueling the fall of index, too. Regular dealers have been fed up by continued loss of value for their share. To them it has in recent times been not more than investing in losing game. The fresh investors do not find any greenery in the NEPSE field for considering entry. The trend to invest in precious metal and other sectors is also more motivating to them.
The pressing questions of the day in the meanwhile are: will NEPSE and problems facing it be able to draw the attention of the people who are scripting the supplementary budget some four months before the closure of fiscal 2010-11? Will they care to feel the pains of real economy and appreciate the role of investment in production? Or will they be simply inspired by the desire to undress the on-going budget and set it in the outfit that satisfies their political passion?
The writer can be reached at [email protected] Nepalnews.com March 13, 2011