The Dhaka Stock Exchange is in meltdown and observers are blaming the crisis on mistimed interventions by regulators triggering mass panic among millions of inexperienced retail investors.
A correction was widely expected on the DSE, which is up 400 percent since the start of 2007, but the speed at which it has happened and the sudden slide has alarmed experts and prompted investors to cry foul.
"Untimely policy measures and interventions by regulators are to blame for this crisis," Salauddin Ahmed Khan, professor of finance at Dhaka University and former chief executive of the DSE, told AFP.
The DSE has fallen 29.3 percent since peaking on December 5 at a record 8,918.15 points. On Thursday, the last day of trading before regulators suspended operations, it lost 599.76 points or 8.6 percent in just six minutes.
In December the central bank raised the percentage of money commercial banks must hold in reserve in an effort to curb local lenders' exposure to the market and rein in inflation.
Experts say this move played a key role in the crash, prompting a mass stock sell-off by banks as they sought to raise cash. "This was what triggered the crisis - it sucked up the funds from the market and now almost all banks are running without liquidity," Khan said.
The introduction last week of a so-called "circuit breaker" to automatically halt trading if the market rises or falls more than 225 points was also ill-advised, he said.
"It creates panic (among retail investors). The government has to get rid of it," he said. Every time trading was halted, protests broke out and on Thursday investors pelted riot police with bricks, smashed scores of vehicles and demanded the finance minister and the Bangladesh Bank governor resign.
The unrest is set to continue this week with regulators saying trading will be suspended on Sunday - the fifth time in two weeks, with no date yet announced for when it will be allowed to resume.
Ifty Islam, managing partner at Dhaka-based AT Capital, told AFP the protests were unfortunate but understandable as many "unsophisticated investors" believe that regulators can control the level of the market.
"One needs to avoid the view that you can control the market as a regulator or your retail investors will hold you accountable" for crashes, he said. "Let's call it growing pains for the market place, but I'd say that allowing a perception to persist that you control the level of the market is very, very dangerous."
Conditions for a crash have been building for some time, experts say, as the number of retail investors nearly doubled over the past 15 months to 3.3 million, lured by record gains of more than 80 percent in 2010.
With this in mind, regulators should have intervened sooner to prevent the market moving up too far and too fast, according to former chairman of the Securities and Exchange Commission, Faruq Ahmed Siddiqi. The DSE crashed in 1996 when there were only 50,000 investors but the 2011 crash will affected a sizeable chunk of the 160-million population and so poses a systemic risk, he said.
"The biggest challenge now is to prevent this major crisis of investor confidence triggering a further slide which would hit the broader economy," he added, warning that some local banks, many of which invested heavily in the market, could be at risk of collapse.
Many retail investors lay the blame for their losses squarely at the government's door.
"I poured all my money into the Dhaka stock exchange," investor Humayum Kabir told AFP after his 2.5-million-taka (230,000 dollar) portfolio lost 60 percent of its value overnight.
"The finance minister lured us into the stock market, he told us it was safe, but now we have lost everything... our savings have vanished."
The government initially said that investors must accept some responsibility for their predicament.
"When the index goes up, no one celebrates or goes round handing out sweets," Finance Minister A.M.A Muhith told reporters January 9.
"But when the market drops slightly, vandals take to the streets. The government won't tolerate this," he said.
But by Friday, faced with mounting public anger and warnings from experts that the crisis, if mishandled, could spread to the broader economy and local banks could collapse, Muhith admitted mistakes had been made.
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