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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.

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