Unresolved Controversy either to open or shut Stock market; Are we scared to face even the fundamental principles of economics?

Sun, May 17, 2020 8:00 AM on Exclusive, Stock Market,
Unresolved...

We all know the price of a particular stock is determined taking into consideration the present situation and the future possibilities of the particular company, industry and the economy as a whole. Having that said, let’s dissect the events that unfolded in the only stock market of Nepal last week.

On Tuesday (12/05/2020) our market opened after a staggering 50 odd days (close to 2 months). In these 50 days, the world economy saw some major changes. This was particularly the effects of COVID-19 pandemic and the shift of financial community’s thought on their present investment.

Nepal has also been affected by the same due to its connections with the international markets in terms of trades and ever travelling Nepalese community. This in turn created the slowdown in the local economy leading the performance of few industries listed in NEPSE to slowdown.  Had the market been left open throughout these 50 days, the share prices would have gradually discounted themselves.  As the market opened its door for us after a long gap, it's quite natural for some of the investors to react with certain degree of shock for those two days of regular negative circuits.

The reason to re-close the market only on the ground of eminent negative circuits by the regulatory bodies will turn to be a suicidal one because if we close the market for more time we may not be able to bear the big and sudden correction that we would face in future. The unavoidable reason is that the economy may further worsen for few more quarters before it gets better. Quite naturally, the market cannot be closed for so long as the international community willing to invest in Nepal may lose their faith in the system ; be it NRNs (Non-Residential Nepalese) , FDI (Foreign Direct Investment) , FIIs  (Foreign Institutional Investors) or any other foreign individuals. We all know that commitment from big investors need consistencies in the market functions, clarity of policies and faith on the market mechanism. The recent action by our regulators would definitely raise a question against all these factors.   

Talking about the current situation of the market where only few stocks were traded shows the maturity of the investors in the Nepalese market. They are trying to discount the economic condition of the industry and overall impact on the economy before buying the stocks of a particular company. This is a pure sign that our investors are able to take calculated risks rather than just gamble in the markets. On the other hand, drastic reduction of the turnover and the transactions last week can be seen as a reaction to the 2% circuit recently imposed by SEBON and the mechanism in which it is implemented in the TMS (Trading Management Software) of NEPSE as prescribed in the latest circular.  This not only is impacting the turnover but also is not able to generate revenues to the government which is a most at this crucial time of fighting the pandemic. So, honoring the maturity of many investors and not just handful of them, the regulators should open the market and let the rational investment community decide the prices without any fear of market being closed for this long haul ever again.

In the present condition of online balance transfers, many of the investors are trying to connect to get enrolled into Connect-IPS. A recent interview from Nepal Clearing House Ltd.’s representative in the media also supports to this claim. Finally, I along with my millennial friends think the future of our capital markets is heading to a right direction as we are slowly becoming tech friendly and paperless. This in near future would make the transactions fast and reliable along with an eye on environmental conservation. 

-Astitwa Sharma

(The writer is an investor in the capital markets of Nepal for the past 10 years with a brief trading history in Indian Capital Markets)