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Shares and risks

Shares and risks

After Bangladeshis riot in the streets following a stock crash, investors should know there is no such thing as a permanently rising market, argues Arab News.

January 11, 2011 2:41 by

For the second time in recent weeks, Bangladeshi investors have taken to the streets to protest violently against a collapse in the price of their shares. On Sunday, many were facing catastrophic losses as the Dhaka stock exchange plunged over nine percent.

It is perhaps worth reflecting the impact if investors elsewhere in the world had expressed their outrage so volubly in the face of the severe decline in the value of investments three years ago. While there is no condoning public order offenses, the sight of many thousands of ordinary people demonstrating their despair at the loss of their hard-earned investment funds might have caused the rich bankers, who brought about the economic crisis, to feel slightly guilty as they watched the thronged streets from high up in their office blocks.

The Bangladeshi stock market had been enjoying a considerable boom and naturally the strongly rising share prices tempted many ordinary people to buy into the market. It seemed such an easy way to make money. But, of course, as investors everywhere including here in the Kingdom, have learned to their bitter cost, there is no such thing as a permanently rising market. At some point the bubble bursts and a lot of people lose most, if not all, of their money.

The fundamental rule is that the more rewarding any investment may be, the riskier it is. That is why governments generally pay so little to borrow from the markets. Governments are not supposed to go bust, though from time to time they do.

The problem for the despairing Bangladesh investors is that, had they been a little bit more sophisticated, they would have seen the danger coming. Whatever underlying financial realities, stock markets are also driven by sentiment. Everybody wants to buy into a rising market and Bangladeshi financial institutions were no exception. Their growing presence in shares, often using deposit funds was in fact what was driving the steady appreciation in values.

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