Editorial: NEPSE illogic

A strange logic seems to have taken hold of some investors in Nepal Stock Exchange (NEPSE). So long as the stock indices keep increasing, they are happy to pocket the gains. But, when the market self-corrects and declines, they cry foul. They knock on the finance minister’s doors to intervene. They rally against the central bank, asking it to ditch measures to limit speculative spending in the stock market. This is not how things work in a functional economy.

Nepal Rastra Bank is perfectly justified in capping the amount (Rs 120 million) that a person or institution can get by holding their share certificates as collateral in banks—if they are to reinvest the loan in stocks. Some blame this provision in the latest monetary policy for recent market corrections. But it’s the right step and will help the market emerge from the clutches of a handful of cunning investors who thrive on fanning wild speculations. The argument that the government shouldn’t intervene in an incipient stock market is also flawed: It is an open secret that NEPSE is under the virtual control of a handful of big investors and stockbrokers who have gamed the system.

The allure of stock investing greatly increased during the pandemic as there were few other investment avenues. Many got in, believing it was an easy way to make money. Soon, they were addicted. They forgot it is just as easy to lose money, especially in a rigged system. Thus the central bank must keep NEPSE on a tight leash and continue to limit big speculative investment. These measures will also help make the stock exchange safer and more reliable.

The 2007-2008 global financial crisis was a cruel reminder that when financial bubbles burst, they can have a devastating impact on people’s lives and livelihoods. Meanwhile, such types as the loan sharks, inside traders, and sellers of dubious financial instruments either disappeared or used legal loopholes to go scot-free. Again, it was the governments that had to ultimately come to the rescue of their citizens. Only thoughtful and timely regulations can forestall such a travesty of justice.