What Is Causing the Persistent Decline in the Stock Market?
Summary: Following the formation of the new government, the arrest of former Prime Minister KP Sharma Oli and former Home Minister Ramesh Lekhak has prompted the UML party to launch street protests. Rumors that the Anti-Money Laundering Investigation Department is preparing to investigate several businesspersons have caused unnecessary fear in the stock market. Meanwhile, the Nepal Stock Exchange is finalizing margin trading regulations and plans to offer margin lending services starting from the month of Baishakh. Kathmandu, 18 Chaitra.
After the two-thirds majority government under Balendra Sah was formed last Friday, investors were optimistic, expecting renewed energy in the stock market from Sunday onward. However, the arrests of former Prime Minister KP Sharma Oli and former Home Minister Ramesh Lekhak led to protests by the UML party, and fears of armed clashes negatively impacted the stock market. The market experienced significant declines on Sunday and Monday, showed slight gains on Tuesday, and then a sharp fall on Wednesday.
Alongside fears of political conflict, rumors that the Anti-Money Laundering Investigation Department is preparing to investigate numerous businesspeople have introduced volatility to the market. The government has already arrested former minister and businessman Deepak Khadka in a money laundering case. On Tuesday, reports emerged that another businessman, Deepak Bhatt, was blacklisted by the Immigration Department following a letter from the Anti-Money Laundering Investigation Department. These developments have alarmed investors who fear more arrests, which is considered a major cause of the market downturn.
According to Narendra Sijapati, former president of the Stock Brokers Association of Nepal, one of the main reasons for the steep declines in the stock market is the unwarranted fear related to money laundering investigations. He stated, “This has unnecessarily unsettled the market. The stock market operates transparently through the banking system, making it nearly impossible for investors to hide proceeds from share sales, so this fear is unfounded.”
Another broker added that it’s widely believed no one would invest in the transparent stock market for money laundering purposes. With investigations underway by the Anti-Money Laundering Department, major investors are adopting a wait-and-see approach, refraining from selling shares hastily. Tulsi Ram Dhakal, president of the Nepal Investors Forum, emphasized that investors should not be fearful about these money laundering inquiries. He said, “The government is introducing private sector-friendly policies and prioritizing good governance in the capital market. Therefore, the current environment of fear is unnecessary.”
Dhakal also explained that all capital market transactions occur through the banking system, and the notion that illegal funds are flowing into the market is incorrect. “Broker companies neither pay nor accept cash directly when dealing shares, so the belief that illicit money is entering the stock market is inaccurate,” he added. With limited investment opportunities elsewhere and low interest rates in banks, the capital market has become a preferred avenue for investment.
Even Sijapati agrees that investors should not overreact to investigations by the Anti-Money Laundering Department. “Controlling money laundering is the state’s responsibility, and some businessmen may have injected illicit earnings into the market,” he said. “While this may have short-term negative effects, ultimately it will ensure a sustainable and secure market.” Policies favorable to the capital market continue to be developed. Recently, the Nepal Stock Exchange (NEPSE) announced margin trading guidelines and released a list of eligible companies. Beginning in Baishakh, broker companies will provide margin lending services, which investors believe will help the market grow sustainably.