Unusually low turnovers and share volume over the past few days have left market analysts grappling to find explanations for the poor performance in Colombo stocks.
There is widespread sentiment that all of the major sectors, banks and finance companies will face major difficulties in the coming year with the full impact of the global financial crisis expected to hit Sri Lanka around April 2009. Retail investors who bought into the market when share prices came down to average their prices have yet to realize any gains because the markets have kept declining. "They are still experiencing losses," one analyst said. "Some retailers are finding it difficult to bear the loss." In the current climate, it is important that investors have sufficient long term holding power to do well in the markets.
Banks and financial institutions are expected to face severe difficulties over the coming year. Banks are facing several internal challenges including increasing specific provisions, reducing loan growth and increasing their deposit base. One analyst noted that financial systems and banks cannot operate without the steady performance of other industries.
Most companies have curtailed future expansion plans and expect profits to drop from recurring business. Some companies are trying to mitigate the effects by investing in debentures and fixed deposits. Some major funds in Sri Lanka are also trying to reduce their equity exposure and increase investments in interest generating instruments. The interest rates offered from commercial papers and fixed deposits are discouraging people from investing in the market. Bank of Ceylon for example is offering rates above 20% on their debentures and is using the share market to illustrate how their returns are more beneficial and favorable. Even major diversified companies are turning to fixed deposits and treasury bills to earn an investment income.
Other analysts feel a lack of credibility, given the recent corporate scandals and the hedging issues involving the Ceylon Petroleum Corporation (CPC) and banks, is impacting on the market. "Sri Lanka is a tiny little market and there are plenty of people who want to exit. There's no direction and we can't foresee any direction on the macroeconomic side. It is sending the wrong signal to investors," an analyst said. He said Sri Lanka needs a strong political will to bring about peace and investor confidence will bounce back accordingly.
For the time being, he added that things are becoming bitter and will be reflected in company earnings. Cement prices are falling and construction is taking a hit. Companies that are connected with construction will also be affected. Apartment sales will not go through. "This cycle will take place for awhile, at least for one year." |
E-mail