Comment
A magnificent performance
Colombo’s US$ 4.8 billion stock exchange may be small by the
standards of the developed world, but it has been one of the best
performing bourses in the world. The Colombo Stock Exchange (CSE) has
witnessed ups and downs over the years, but investors have basically
kept faith in the stock market itself and in the macro economy.
Now comes the good news that stocks have been rising for nearly 12
days in a row. This is the longest such run in almost four years. The
main reason for this bullish sentiment is very clear: The Government is
very close to totally defeating the LTTE and ending the 30-year-old
conflict in the North.
Investors have high expectations that peace would follow in due
course and with it, an environment more conducive to business.
A peaceful environment will be a catalyst for greater expansion of
investment activities not just in the stock market but also in a variety
of other sectors. Investors, especially those from overseas, are
reluctant to invest in a climate of instability and uncertainty.
An end to terrorism and the consequent dawn of peace will bring
stability to the market, dispelling any fears entertained by investors.
Yesterday’s announcement that the Government has ended major combat
operations using heavy weapons and combat aircraft, signalling an end to
the conflict, is likely to augment the CSE’s trading volumes further.
Certain steps taken by the Central Bank have also helped the upward
momentum at the CSE. The steep fall in benchmark interest rates is a
case in point.
We hope to see more encouraging steps from the Central Bank which
will boost investors’ faith in the economy.
Just last week, the Colombo All Share Index rose 1.8 percent to
1,810, completing the longest winning streak since the 15 days that
ended May 11, 2005.
Bluechip stocks gained significant ground while almost all others
performed admirably.
In fact, the All Share Index of 241 companies traded on the Colombo
Stock Exchange had 134 stocks advancing. Bluechips such as John Keells,
NDB Bank and Commercial Bank led the rally, but others were not far
behind.
Another significant development is that the market capitalization or
the ‘wealth’ of the Colombo Stock Exchange has increased to Rs. 602.2
billion to date from Rs. 513 billion in January. This tremendous
achievement should be viewed as a positive response by the investor
community to the Government’s efforts to restore peace.
Most brokers and investors now view the CSE as the best available
option to invest in. This should also reinforce the overall confidence
in the wider economy.
Most investors and individuals now opt to buy stocks instead of
saving funds in banks, which is another sign of their confidence in the
CSE. More companies are considering going public in this context and
that can boost the market further. New developments, including
amendments to the CSE Act are expected to facilitate their entry to the
CSE.
We are told that the Colombo Stock Exchange (CSE) is exploring the
possibility of setting up a Clearing Corporation to minimize risks and
guarantee settlement of funds in all stock market transactions.
This too is a step in the right direction. A similar system is
already in operation in India. Such a step is likely to increase volumes
in the market. This quick method will complete the transactions on the
same day and will also help introduce various instruments including
derivatives and stock futures to the market, adding value to the CSE’s
portfolio.
The CSE still faces the challenge of taking its message and products
to the wider population. To this end, it has opened branches in key
outstation cities, but there is still a perception that it is only for
the elite society in Colombo. The CSE should strive to change this
picture to attract more individual investors and capital.
The CSE’s performance and the resilience of the economy in general
should be commended in the light of the world’s economic meltdown, which
has affected both developed and developing countries. In this regard,
the CSE has defied conventional odds to emerge as one of the best
performing bourses in the region.
Although some foreign investors did dispose of their shares in
bluechip companies as a result of the financial crisis, this has
apparently not affected the CSE’s overall health. However, the CSE
should keep an eye on the worldwide recession to mitigate any harmful
impact.
Now the onus is on the CSE as well as other bodies such as the Board
of Investment to keep the momentum and attract more investors to the
country.With peace on the horizon after almost 30 years, this is an
opportunity that should not be missed. |
