Over the past few weeks, junks stocks have more often topped the gainers’ list, which brought into question the investors’ preference for such shares despite them having a substandard performance.
The stocks of a company are defined as junk when their commercial production is shut or if it is failing to provide the dividends to shareholders or to hold an annual general meeting (AGM).
On March 9, while hanging around the BRAC EPL Stock Brokerage in the capital’s Motijheel area, a reporter asked an investor the reason for investing in junk stocks.
“Gamblers are going to play with the company,” he said on condition of anonymity.
“On the other hand, the market regulators’ recent steps to enable a rebound of their performance also instigated me,” the investor added. The Bangladesh Securities and Exchange Commission (BSEC) has taken the initiative to restructure companies whose performance is below par.
Till date, the BSEC has replaced boards of directors of six listed junk companies — Emerald Oil, C&A Textiles, Ring Shine Textiles, United Airways, Familytex (BD) and Alhaj Textile Mills. Market analysts believe that the investors are not interpreting the regulators’ steps, which could blow up their portfolios. It cannot be said with any certainty whether the new boards will be successful in bringing the companies on the right path.
As with the case with United Airways. Its newly formed board has already informed the BSEC that it would need a very high amount of funds to make a comeback. A similar situation has been taking places for all the other junk stocks and so a rebound will not be no easy feat.
However, the BSEC’s attempts are definitely worthy of praise as they are trying by all means to make the companies perform better. Despite the setbacks, the investors are still in a rush for these companies.
This reflected on Bangladesh Industrial Finance Company (BIFC), Imam Button Industries, Zahintex Industries, Tung Hai Knitting and Dyeing, Tallu Spinning Mills, Aramit Cement and some other junk stocks prevailing in the gainers’ list on a couple of days last week.
The Aramit rose 38 per cent, BIFC 14 per cent, Imam 15 per cent, Zahintex 13 per cent, Tung 19 per cent and Tallu 10 per cent in the past two weeks.
Although the investors need to be cautious about the investment and should take into account the damage to their portfolio if the companies cannot make a recovery. They should invest in the companies with good health so that their dividend returns can even out the losses even if the stock prices of the companies fall.
Moreover, the companies should invest taking into consideration the performance of the companies and hold stocks for long periods of time in order to benefit as the investment in junk stocks is risky.
“When you invest into a well-performing stock, you will worry less, so why should a rational investor invest into junk,” said Shahidul Islam, CEO of VIPB Asset Management Company.
“We always prefer top-performing companies to make investments,” he said, adding that uncertainty remained over whether any junk stock would be able to make a comeback, so seeing investor taking risks was confounding.
The DSEX, the Dhaka Stock Exchange’s (DSE) benchmark index, fell 17 points last week. The daily average turnover, an important indicator of the market, rose 20 per cent to Tk 866 crore.