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Reasons for Stock Market Crash Bd

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Submitted By ashraf3
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Bangladesh stock market faces biggest crash in 55 years. If we would recall, Dhaka Stock Exchange Gen. Index (DGEN) soared to its highest levels from October to December last year, with the peak on Dec. 5, 2010 at 8,918 points. DSE’s index on Jan. 3, 2010 was at 4568.40 and went up at a staggering 4,350 points or 95.23% increase! But 2weeks ago, Jan. 10, 2011, trading on the Dhaka Stock Exchange was halted after it fell by 660points, or 9.25%, in less than an hour, the biggest one-day fall in its 55-year history.

Reasons for Stock Market Crash:

1. Bangladesh was having current account surpluses (huge remittance flows). So more money was coming in than going out. It made a situation that lots of people had money in their hands. Rather keeping money at banks, they invested that money in Stock Market. Because you can earn more in a short period of time.

2. Interest rates went down. So, it was not a good idea to get around 8.5% interests per year (before tax) when inflation was around 5-7%.So suddenly, people had a lot of idle money which they were unable to invest anywhere. Anywhere except the stock market that is. Thus the joyride of equities (stocks) began and that situation is still continuing. Because of this excess flow of funds by both general investors as well as institutions (Banks, NBFI's and Insurance companies), multiple attempts by the regulator failed to cool down the market. No alternative investments were available. Plus, when you can earn 30% return in 7 days why would someone invest elsewhere?

3. Laid down at a limit for investment by the banks and other financial institutions in the stocks.

4. Merchant banks and Brokerage houses provide increased margin loan. This made the situation that people who have no knowledge about Stock Market started to invest their savings.

5. Market P/E (trailing) is around 30 at

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