Buyer beware or beware the buyers?
Hundreds of Bangladeshi investors have rioted on the streets of Dhaka in recent days over stock prices that have plunged nearly 18 percent since the start of the year. Police used batons and tear gas to break up protests that blocked roads around the country’s main stock exchange.
If this sounds familiar, rewind back to 2008 to another part of the Indian subcontinent, when angry investors rampaged through the Karachi Stock Exchange after a series of precipitous share price falls.
In less developed markets, retail investors often bear the brunt of losses as they tend to account for the bulk of total investment rather than institutional players.
Seen to have greater resources to make more informed decisions than private individual investors, institutional investors account for roughly three-quarters of equity investment in the United States. Compare this to the leading emerging economy of China where they account for about half of the market.
The strength of emerging markets over the last two years, coupled with loose credit conditions, has lured many individual investors regardless of whether they possess the required nous for profitable risk-taking.
But conditions have now turned. Emerging equities have been on the retreat since the start of 2011 and central banks are likely to begin monetary tightening sooner than previously thought to fend off growing inflationary pressures.
Like food prices in the Middle East, stock price volatility could well trigger wider social unrest.
Caveat emptor? Rather, policymakers in the emerging world should beware the buyer.