Glimpses of 1996: Investors Beware

Today I saw a report of share market manipulation in Bangladesh. BD Thai, a local company producing aluminum panels incurred losses for four consecutive years till 2007. Its share price dropped as low as Tk 43 while the face value of the share is Tk 100.

Now, how to turn the price of Tk. 43 into Tk. 1200 (current market value)? Enter a foreign investment fund called GEM Global Yield Fund from USA, offering to pump in a huge amount into the company with a hopeless record and some market propaganda.

The Daily Star reports:

A deal was cut between the aluminium panel producer and the foreign investment fund under which the foreign firm snapped up a huge chunk of shares at a huge premium.

The market went crazy with the news. The company's shares worth Tk 43 soon started trading at a breakneck speed at astronomical prices, reaching as high as Tk 1,199 a share.

Within a month and a half, the foreign firm dumped all its shares on the bourses, and made even more astronomical profits. It repatriated $2 million from Bangladesh against its investment of $500,000. A super deal by any standard, for a month and a half.

GEM Global sold 272000 BD Thai Aluminium shares at Tk 909.51 each, totaling in more than Tk 247.3 million.

GEM Global is an investment firm of GEM Global Emerging Markets, having offices in New York, London, Paris, Hong Kong, and Beijing.

GEM Global is incorporated in the Cayman Islands, a British overseas territory in the Caribbean. It is billed as a centre for tax evasion. It has a tax rate of zero for corporation tax, income tax, and capital gains, drawing some of the world's biggest banks and hedge funds to its shores.

GEM Global have purchased shares of more companies of Bangladesh, namely Beximco Pharmaceuticals, and Aftab Automobiles. GEM Global seeks to acquire 16% stake of Beximco pharmaceuticals.

The Security Exchange Commission presently does not have any lock-in system for the foreign fund. "In the past, the lock-in system had been in place for all companies -- both foreign and local -- to avert short-term speculative trading, and flight of capital from the market."

The problem also lies with the investors in Bangladesh whom can be easily manipulated. A tip for them:

How to Recognize Stock Market Manipulation vs Normal Stock Market Movement?