… difficult to pinpoint the impact of Covid-19

The economic slowdown caused by the pandemic did very little to hurt the stock market enough.

The stock market in the country remained active as ever recording a trading of shares worth Nu 863 million (M) in the secondary market last year. While it is a marginal decrease compared with 2019, this is one of the highest trading recorded ever in the history of stock exchange. The year 2019 saw the highest trading with a three-fold increase in share trading valued at Nu 1.13M in the secondary market.

Secondary market is a platform, where investors buy and sell securities they already own. It is what most people typically think of as the stock market, though stocks are also sold on the primary market when they are first issued as an initial public offering (IPO).

“Since market is a reflection of investors’ sentiments, it is difficult to pin-point the impact of Covid-19,” Dorji Phuntsho, the chief executive officer of Royal Securities Exchange of Bhutan (RSEBL) said. However, he said that prices of major stocks fell compared with 2019.

Going by what some investors said, stocks are being viewed as liquid assets, an asset which can be easily converted into cash. In other words, people have been engaging in share trading to draw cash. More so when the economy is experiencing a downturn, resulting in price fall.

However, it can be noted that prices did not fall dramatically.   

This is because the demand was also high. People with disposable income are into buying shares when the prices fall, thinking that it might prove lucrative down the years. Even when the rights offer given by the GIC-Bhutan Reinsurance Limited (GBRL) went for auction, the lowest bidding price touched the market price.

Rights are offered by listed companies to its existing shareholders at a special price in proportion to their holding of old shares. If the existing shareholders do not subscribe to their rights it goes for public auction.

Another worry some investors raised was with regards to the dividend payout. To provide livelihood support and upon the Royal command, banks have extended interest waiver and deferred the loan repayment tenure. This will create a hole in the profitability of the banks indirectly impacting the dividend payout. Some observers feel that this could be the reason some shareholders are disposing their shares in the secondary market, thus depressing the share prices.

Banks, particularly the shares of Bhutan National Bank, Royal Insurance Corporation of Bhutan and Druk PNB constitute more than half of shares in the market.

Thus, these companies dictate the Bhutan Stock Index (BSI). Stock indices can serve as benchmarks for investors measuring the performance of their own investment portfolio. It provides a broad insight of a stock market by measuring the performance of selected securities.

The BSI has decreased from 1,020 points beginning January, 2020 to 904 points in May of the same year, when the economic activities suddenly slowed due to pandemic. The BSI has more or less stabilised between 950 to 936 since September last year till December.

Although the listed companies may experience the impact of Covid- 19, Bhutan’s stock market is insulated from the global market as foreign investment into the country’s stocks are restricted. Even those sectors affected by the pandemic are not well represented in the stock market, albeit delisting of two mining companies last year.

The stock exchange has also revised its circuit breaker in the wake of the pandemic, from 5 percent to 2.5 percent. Circuit breaker is a temporary halt in trading to prevent overnight spike or drop in prices.

While it can be said that the RSEBL has not experienced a direct hit from the pandemic, it is also creating more public awareness in terms of educating the general public on fundamentals of share trading. The session has also gone virtual since the pandemic started. This, in turn, has been speculated as the major factor contributing to increased trading.

Contributed by

Tshering Dorji

Tshering Dorji is a freelance journalist and co-founder of OxMedia