One fall-out of the COVID-19 has been on Bhutan’s stock market which has seen a record market capitalization or cap of Nu 4.8 bn in value being wiped out since March 5 to April 30, 2020.
The market cap or the total value of all the stocks on the stock exchange was Nu 50 bn on 5th March 2020 but it dropped down dramatically over the next two months to reach Nu 45.2 bn as of 30th April.
The Royal Securities Exchange of Bhutan (RSEB) CEO Dorji Phuntsho admitted that this was the sharpest and biggest ever drop in stock value.
The red colour on stocks denote a fall in value while green shows an increase and grey is no change. The stock market in the past few months has been dominated by the colour red.
The CEO said that the prices of the stocks have to do with market sentiments around the pandemic. He said that before the pandemic certain stocks may have been overvalued but maybe now people are discovering their true value.
He said that around 50 percent of the market cap is led by Financial Institutions and a fall in value there would affect the market cap. Other stocks are held by industries and others.
He said apart from the pandemic other factors would also come into play like peoples’ need for liquidity to sell the shares and the fact that since March is the time dividends are declared there is a normal drop every year after March.
He, however, said that drop this year is unprecedented.
The CEO, however, pointed out that even before the pandemic there was already a drop in value happening as the marker cap in December 2019 was Nu 52 bn which fell to Nu 50 bn around two months later by 5th March 2020.
If one took the longer view the total fall in market cap between December 2019 and 5th March 2020 is around a whopping Nu 7 bn.
The CEO said that last year there was a liquidity crunch from the Financial Institutions and so people rushed to sell their shares for cash leading to a record sales of Nu 1.2 bn in 2019, which helped provide liquidity to the market.
This would mean that the bearish sentiment in the stock market started from last year but was highly exacerbated this year with the pandemic.
The fall is despite the fact that the majority of the shares are held by institutions who would be under no pressure to sell.
This is unlike foreign stock markets where a large portion of the shares are traded by stock brokers on a daily basis.
To address the consistent fall in the prices of the stocks and to ensure market stability and maintain investors’ confidence the RSEB from 23nd April 2020 implemented a minimum trade volume to change the last traded price of a stock.
Under this it required 0.0041% of the total outstanding shares of each company to be collectively traded in a day to change the last traded price.
What this means is that you can no longer change the stock prices by trading in a small amount of shares, but one would have to trade a large amount of shares to impact the last traded price.
For example, one may need to sell 16,000 BNB shares to change its last traded price.
Another measure to address the fall in stock prices by RSEBL is introducing a circuit breaker of 2.5 percent which means that system will not accept anything more than a 2.5 percent change in the value of shares in a single day.
The circuit breaker, when it was first started, was 15 percent and had reached at 5 percent before the pandemic but after the pandemic it was brought down to 2.5 percent.
Without the above two measures the fall in stock values may even have been steeper.
The RSEBL has 21 listed companies on the exchange.