Investors even so chasing junk stocks
Junk stocks have frequently featured at the top gainers' list for recent weeks, bringing into dilemma investors' desire for such shares despite their substandard effectiveness.
A company's stocks are referred to as junk when its commercial development is shut or it really is failing woefully to provide dividends to shareholders or even to hold an annual general meeting.
While hanging around Brac EPL Stock Brokerage found in the capital's Motijheel in Tuesday, this reporter asked a great investor the reason why for him investing in a junk stock.
"Gamblers are likely to play with the business," he said on condition of anonymity.
"On the other hand, the marketplace regulators' recent steps to enable a good rebound of their effectiveness as well instigated me," the investor added. The Bangladesh Securities and Exchange Commission (BSEC) has taken the initiative to restructure firms whose effectiveness is below par.
Till time, the BSEC offers replaced boards of directors of six listed junk corporations -- Emerald Oil, C&A Textiles, Band Shine Textiles, United Airways, Familytex (BD) and Alhaj Textile Mills.
Market analysts assume that investors are actually misinterpreting the regulators' actions, which could inflate their portfolios.
It can't be said for selected if the new boards will achieve success in bringing the companies back on track.
Take the case of United Airways. Its newly formed board already informed the BSEC that it could need a large amount of fund to create a comeback.
A similar problem prevails for all other junk stocks therefore bouncing again will be no easy job.
However, the BSEC's steps are definitely praiseworthy as they will attempt till all mean happen to be exhausted to make companies perform well again.
Despite such disadvantages, investors continue to make a rush for these businesses.
This reflected on Bangladesh Industrial Finance Company (BIFC), Imam Key Industries, Zahintex Industries, Tung Hai Knitting and Dyeing, Tallu Spinning Mills, Aramit Cement plus some other junk stocks prevailing in the gainers' list on a couple of days last week.
The Aramit rose 38 per cent, BIFC 14 %, Imam 15 %, Zahintex 13 per cent, Tung 19 per cent and Tallu 10 % in the past fourteen days.
The investors need to be wary of their investment and really should think about the harm to their portfolios if the firms cannot make a rebound.
They should invest in good companies to ensure that their dividend returns can offset losses regardless if stock prices of the firms fall.
Actually, investors should invest taking into consideration the performance of companies and hold stocks for extended periods of time in order to benefit as investment in junk stocks and shares is too risky.
"When you invest into a well-performing share, you will stress less, why should a good rational investor invest into junk," explained Shahidul Islam, CEO of VIPB Asset Supervision Company.
"We constantly prefer top-performing firms to create investments," he said, adding that uncertainty remained more than whether any junk stock would be able to become popular again, so experiencing investor taking chances was confounding.
The DSEX, the Dhaka Stock Exchange's (DSE) benchmark index, fell 17 points the other day.
The daily average turnover, an important indicator of the marketplace, rose 20 % to Tk 866 crore.
