Capital markets everywhere in the world react to events of this type quickly. In the process, the markets go so wild that they often face shock again and in quick succession. Clever traders use these occasions to extract all the cream off the market and eventually push the market back to slumber again. The optimism coming out of the peace deal, that top leaders are calling as historic in unison, is certainly good news for the capital market. But small investors should not jump in when prices start picking up. Capital market in Nepal has remained subdued for over four years now. It is grossly undervalued in every sense. But due to political predicament and generally poor investment climate, the market participants lacked confidence and as a result most of the scrips were selling at prices less than what they should be worth in an ideal market. Now, the time has come; the prices would start climbing. Buyers get scared when prices fall but the behavior reverses when prices rise. When many buyers come, the prices shoot up. This is what market should avoid. Yes, prices should pick up but in a pace that is sustainable and keeps the market going. This is a task that can best be handled by institutional investors who can offer scrips when there is a buying pressure.
Property market went into hibernation for a number of reasons in the last one year, the main reason being the excessive leveraging. In a highly leveraged market, the market participants had least concern about the prices. Banks were easy going. As the credit tightened, there were no new buyers. And the market came to a standstill. It still is in spite of some thawing. Now, in an optimistic mood, this market can again rebound. The property prices were so high, they still are. Any rise in property prices again fueled by bank loans would invite another disaster. This market should function properly with some deleveraging and banks should avoid further lending.
The optimism coming out of the peace deal, that top leaders are calling as historic in unison, is certainly good news for the capital market. But small investors should not jump in when prices start picking up.
During times of hope and optimism, other economic activities also pick up, not just capital and property market activities. This leads to higher demand for credit. Commercial banks, in particular, were reporting excess liquidity in the recent months. There are chances that banks would be under pressure. This is the moment to be judicious and see if any lending can pose the problems that we experienced not long ago. This is the time to go for productive sectors, including commercial agriculture. Banks should also be finding some relief when capital and property markets pick up some traction. The reason is that their loan portfolio will improve as the market starts releasing liquidity.
But more than the much-anticipated dynamism in the financial markets, the recent development will certainly raise the rating of Nepal’s investment climate. The recently concluded Bilateral Investment Promotion and Protection Agreement with India sent clear signals that the government and the country wants investments from wherever it can come, but as per our needs and as per our policies and laws. The government is going ahead with other such agreements with other countries. We need investments in building large infrastructures. We need investments to execute large storage hydro-power projects. Above all, we need not only investments, but also advanced technology that can turn our agriculture produce and mines into exportable commodities so that we can finance our imports from our exports. We need manufacturing industries that can generate employment for our youths at home so that nobody is required to line up before manpower agencies for a job outside the country.
The Tourism Year is coming to a close, but attention to tourism will never stop. Perhaps, the biggest beneficiary of the recent development in the peace process would be the tourism sector. Unlike financial markets, its rise does not lead to any burst. When it rises, it will keep on rising. Because, as aptly said, Nepal is a destination for all seasons.
If the wind does not blow to a different direction, which seems highly unlikely and may be nearly impossible now, the economy will generate more opportunities. The economy will also make all opportunities safer. This is not just a figment of imagination. The government’s recent moves to improve industrial relations and positive attitude of Trade Union leaders toward work and productivity are noteworthy. Workers’ welfare lies in availability of options in job market. Options will be available only when there are more industries and businesses.
Everything that fell apart in the past now seems to have come to an order. As one can see emergence of a host of opportunities, the financial market should not use this occasion to promote speculation in any of its segments. If we make the right decisions on our resource allocations, we can achieve a stable but growing economy. If resources again go to fuel speculation, then nobody can prevent a disaster happening again. One only hopes that real-estate and stock markets in particular have learned sufficient lessons in the past. This is the time that those lessons are revisited again. Particularly, small investors and families buying plots for building ‘once-in-a-lifetime home’ need to be patient and should not lead a buying spree.
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