On Monday January 10, 2011, Bangladesh's main stock index, the Dhaka General Exchange (DSE, for short), plunged 9.25% in the steepest single-day drop of the bourse's entire 55-year history. The market's freefall triggered the second round of violent protests in the region since December, with mobs of angry investors swarming the streets of the country's financial district.
The scene is described as one of "carnage and panic": Trading halted, people lighting cars on fire, pelting police officers, shattering windows, and chanting anti-government slogans calling for the dissolution of two main corporate leaders: the Central Bank governor and, the founder of Grameenphone -- the largest telecom company in Bangladesh -- Muhammad Yunus.
In a recent article, The Economist branded Yunus "Saint under Siege," having gone from receiving the Nobel Peace Prize in 2006 for pioneering microcredit finance -- TO -- in 2010 being accused of "sucking the blood from the poor in the name of poverty alleviation."
Mainstream economists look at events external of the market for a cause of trend changes. In Bangladesh, the estimated three million investors who lost millions of dollars in the DSE's recent hemorrhaging have nailed many faces to their blame dart boards: The minister of finance, Muhammad Yunus, government manipulation, big institutions, and on. But the theory of Socionomics, a new science of social prediction based on the Wave Principle, has a different explanation.
Socionomics postulates that social and financial trends are driven by the Internal changes in mass social mood, not External events -- which are only expressions of the changes in mood. The progress and regress of stock market prices, which unfold in Elliott wave patterns, reflect and predict social mood changes. Not to oversimplify, when social mood improves, stocks rally, and we see peace, accord, reverence for corporate entities, and other expressions of social harmony prevail. On the flip side, manifestations of falling mood are bearish reversals in stocks followed by violence, discord, and other negative social phenomena.
As it were, the recent boom-to-bust financial history of Bangladesh fits well into the Socionomic model.
Here, we go back just one short year ago, to late 2009. At the time, the Dhaka Stock Exchange was lauded the "tiger of Asia," with prices orbiting their highest level in over a decade. Grameenphone (GP) went public in November to become the most heavily weighted share on the DSE. And GP founder Muhammad Yunus became known as the Bill Gates of Bangladesh. Here, this December 31, 2009, news item captures the public's pro-corporate sentiment:
"Dhaka Stock Exchange Defies Meltdown. 2009 was a resilient year as the listing of the largest private company and crowding of new investors helped it defy the global recession. The entry of Grameenphone stocks created a new benchmark, bringing depth and maturity to a market known for rumor-driven trading and manipulation. GP stock made sure that the trading would never be the same again." (Financial Express)
From all outward appearances, the Bangladesh market seemed new and improved. But the internal pattern of social mood revealed a market nearing the end of its rise, not the beginning, with the old-bungling warts of "manipulation," "rumors" and volatility set to resurface. Here, Elliott Wave International's December 2009 Global Market Perspective issued this timely insight:
"We agree that the Bangladesh market will continue rising for the time being, as wave (5) works out its final subdivisions. But longer-term, Grameenphone's IPO is more likely to mark a major top. The ensuing [decline] will also likely lower the world's estimation of Professor Yunus, Grameen Bank... It seems that far from being anything revolutionary, lending and selling to the very poor is simply following the same growth-and-decay patterns experienced by other disruptive technologies and innovations. The 'Teflon' coating that bull markets afford social leaders and corporate heroes has swept such criticisms under the rug for now. But bear markets aren't so forgiving... So enjoy the stock market fireworks while they last."
Then, once the Dhaka Stock Exchange turned down from its December 5, 2010, all-time peak, the January 2011 Global Market Perspective presented the following close-up alongside this message:
"The Dhaka General Index completed five waves up in early December and has since fallen below its uptrend line -- probably a sign that a correction has now begun in Bangladesh."
Flash ahead to today, and behold this updated chart of the Dhaka SE General Index in the weeks following the bearish outlook in the January 2011 Global Market Perspective:
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