Bangladesh's stock frenzy raises fear of new crash

The move saw share prices for Grameenphone drop around 6.0 percent by close Thursday, but experts say the new curbs will not halt the Bull Run.

“The market is going up and up, defying all logic — this is driven entirely by rumor,” said Reaz Ahmed of LR Global, a New York-based fund manager.

“Real economic growth has slowed down and the fundamentals of the economy are not that strong,” he said, adding that the market was “heavily overvalued” and that he expected a 20-percent correction to come at any time.

Bangladesh's economy is projected to grow 5.5 percent in the year ending June 2010 — its worst performance in eight years.

Exports, the main lever of growth, declined by six percent in the first six months to December. Inflation has reached seven percent, with food inflation believed to be significantly higher.

Cash from remittances — some US$10.5 billion last year — and a government amnesty which allows untaxed cash, often from bribes, to be invested in the bourse have fuelled the bubble, said AIMS fund manager Yawar Sayeed.

“New investors are being bused in by brokers from rural towns to feed the frenzy,” he said.

“A massive correction has become long overdue. There is a very strong chance we'll have a crash, and if this happens it will destroy the lives of hundreds of thousands of people, and the scale of devastation will be worse than 1996.”

The legacy of that crash lives on for Khairul Alam, a 40-year-old government clerk who invested his father's entire pension of one million taka into stocks, only to see it vanish within a month.

“My father never got over it. I had to work two jobs a day, from morning to midnight to support our family of eight people. My only sin is that I advised my father to buy stocks,” he said.

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