Bear Economy Bull Market
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Rabindra Bhattarai |
By Rabindra Bhattarai
Since the February 1, 2005 move of the King the country's economy is nose diving with most of the economic indicators in a decreasing trend. The growth rate of the GDP was only 2.33 per cent in fiscal year that ended during mid-July 2005 and some economists are predicting that it will be negative in the current fiscal year if the ongoing situation remains unchanged.
However, the stock market is showing a bullish trend ever since February 1, 2005. Why?
Some analysts argue that the Nepali stock exchange is following the global trend. Globally, the stock markets are in the bullish trend. For example, in India, the Sensex recently crossed the 10,000 mark, recording a new high. The index one year ago was in the range of 6,000. Similarly, Dow Jones Industrial Average in the USA has crossed 11,000 from 9,000 a year ago.
But that seems to be too simplistic an analysis. The Indian economy is reaching a double digit growth rate and the market there is connected with the global phenomenon with a lot of direct foreign investment coming in, both in the real sectors as well as in the stock market. But till date, we cannot say that the Nepali stock market is able to sense the global effect. This market cannot even sense the domestic environment, such as the ones outside the Kathmandu Valley. The stock market has increased even when there are general strikes and bomb blasts in Kathmandu or outside it. For example, When the Maoists called for a week-long general strike beginning February 5 this year, Nepse index increased 1.23 points on February 7.
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The Nepse index increased by 25 per cent during one year of the King's direct administration. The index reached 309.04 on February 1, 2006 increasing by 61.63 points from the level of 247.41 on February 1, 2005. But this is not a result of the King's move. The market had started to increase much earlier than February 1. There were a number of other factors that helped to push the Nepse.
First, more than 90 per cent of the market is dominated by banks, finance companies and insurance companies and the financial performance of these companies is continuously improving. Second, the stock market is totally concentrated in the Kathmandu valley and the people feel safer in this area. So, the people here feel safer to invest in the stock market. Third, the Nepali stock market has no impact from the situation out of the valley. If there is some such effect, the people who had their investment in the assets outside the valley have diverted it to the stock market in the valley. Fourth, the buying and selling pressure in the market is totally dependent on the valley's limited investors. Fifth, there is the diversion of the investment from gold to the stock market. Lastly, as the opportunities to invest in other sectors are limiting, the people are increasingly investing in the stock market.
