Share investors have been opening themselves to potential financial losses by making  investment decisions based on speculation prompted by a bull run in the stock market, analysts said.

The Securities Board of Nepal (Sebon), the regulator of the securities market, warned investors on

Monday to go easy on share purchases saying that the current buoyant mood in the stock market did not reflect the state of the economy which was devastated by the earthquake and blockade.  

“The performance of companies listed on the Nepal Stock Exchange is not satisfactory,” Sebon said.

“The board makes a special request to investors to study the current economic picture, fundamental indicators of listed companies and their ability to absorb risks before making an investment.”

Notwithstanding the pounding dealt by the earthquake and blockade, the Nepse index has been soaring.

On Wednesday, the Nepse closed at 1362.98 points compared to 961.23 points at the beginning of the fiscal year.

The market had exhibited a similar behaviour in 2009 before freefalling for the next two years. The Nepse has recently been setting new records daily.

Meanwhile, investment

analysts have played down Sebon’s warning describing it as hysteria triggered by the unusual rise in share prices in recent months.

Prakash Tiwari, financial analyst and manager of Hathaway Investment Nepal, said, “Sebon’s request is aimed at warning small investors who act upon rumours. There will be financial losses if a liquidity crunch forces up interest rates making investment riskier and costlier than it is today.”

According to Tiwari, Nepal’s stock market has been witnessing a five-year cycle of boom and bust. “The current cycle will end in August 2016,” said Tiwari.

“Big market players are fully aware of the growth

projections and will be able

to avert risk at the end of

the cycle, but small investors may suffer.”

Former deputy governor of Nepal Rastra Bank Krishna Bahadur Manandhar said, “As per our past experience, we have seen no linkage between the fundamental indicators of companies and market performance. This growth is largely based on speculation.”

According to Manandhar, the current escalation can be attributed to low interest

rates enabling greater borrowing and investment in stocks; but sooner or later, the stagnant economy will see a downswing resulting in losses to investors.

Insurance stocks have been rising the fastest, reaching 6,171 points in a few short months. Market analysts

have attributed the rapid growth to rumours that insurance companies will be making heavy dividend payments in the coming days.

The Insurance Board has planned to pass a directive requiring insurance companies to increase their paid-up capital substantially. However, it is not certain if the proposed directive will materialise. If the directive does not happen, the high expectations and speculation will lead to financial losses in the future.