What explains the stock market crash in Bangladesh starting from 2010

1. 2010-11 Capital Market Crash
An analytical postmortem
Asif Khan, CFA
Deputy Head of Research,
BRAC EPL Stock Brokerage
Venue: UIU
Date: June 10th, 2014

2. 2
December 19, 2010: Market down by 6.7%
December 20, 2010: Market up by 4.0%
December 21, 2010: Market up by 2.6%
Dates etched in memory

3. 3
-
2,000
4,000
6,000
8,000
10,000
Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13
DGEN DSEX
What happened next?
Source: DSE

4. 4
-
2,000
4,000
6,000
8,000
10,000
Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13
DGEN DSEX
60% decline from the top!!!
60% drop
Source: DSE

5. 5

6. 6
Let us check
the past

7. 7
-
2,000
4,000
6,000
8,000
10,000
Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10
DGEN
196% return in last 4 years!!
Source: DSE

8. 8
The full picture
Source: DSE
-
2,000
4,000
6,000
8,000
10,000
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
DGEN DSEX Linear (DGEN)

9. It is all about valuations
9
0
5
10
15
20
25
30
35
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Trailing P/E Mean
Source: DSE

10. 10
What creates bubbles?
Macroeconomics
o Misallocated capital
o Excessive leverage
Microeconomics
oPrice and demand having positive relationship
Psychology
o Overconfidence
o ‘This time is different’
Moral Hazard
o Excessive risk taking promoted
Herd behavior
o Biological

11. 11
Bubbles are not new
Tulip mania (1637)
 South sea company (1720)
Japanese asset price bubble (1980s)
 Bangladesh stock market (1996)
 Asian financial crisis (1997)
 Dot-com bubble (1995-2000)
 US Housing bubble (2007)
 Many more to come….

12. The end