An overwhelming majority of respondents to a Business Times poll this week on the crisis in Colombo’s stock markets which led to price curbs concurred that the market has become a ‘casino’ with complete disregard for fundamentals or the true value of stocks.
“People have less knowledge of the stock market and it’s becoming more casino-type trading and a fashion where the investors want to make quick money,” said one respondent. The crisis has been compounded by the urgency of senior citizens to invest and get quick returns after shifting their savings from commercial banks and finance companies plagued by low interest rates or credibility.
A majority view was that investors need to be better educated and guided with a request for the SEC and the CSE to run more awareness programmes.
More than 400 people from a BT email data base responded to the poll. To the question as to whether the Securities & Exchange Commission (SEC) decision to limit price revisions to a maximum of 10% up or down, was wise, 56 % said yes while 32 % disagreed.
Some 83 % agreed that the market has gone wild with casino-type trading where fundamentals are unimportant and speculative trading/luck-by-chance has taken over everything else. There was mixed reaction over the question of whether the regulators (SEC/CSE) are able to prevent market manipulation and artificial propping up of stocks. Nearly 47 % said the regulators can stop manipulation while 35 % said ‘No’.
Concerns were raised about the market getting overheated and the ‘bubble’ bursting. “This would be disastrous results to investors and corporates seeking funds through the stock market. A market crash, like the failure of banks and other financial institutions, can cripple the economy,” the respondent, a top corporate professional said.
He urged that investors must be educated about the dangers of investing on the expectation of capital appreciation without limits. “Those who borrow to invest are in great danger. Like a Ponzi scheme a stock market bubble has a limit of growth/size. This the investors should know. The stock market has all the elements of gambling and gambling risk. The regulator cannot control the investors but can educate and guide them,” he said.
He also noted that the financial statement integrity of listed companies is crucial in this state of the market. “The auditors and the regulators should be more vigilant and audit scrutiny should be more intense to ensure that the overheating is not escalated by excessive profit reporting and unwarranted optimism,” he added.
While many agreed that the regulator has acted wisely in enforcing the price curbs, others said the SEC could have tracked the suspect stocks and imposed price curbs on them rather than on the whole stockmarket. “Instead of labeling everyone, the SEC should have punished only the wrongdoers after a quick inquiry,” one respondent said, adding: “This should have been done two months back when the market was spinning with unrealistic trading in low-value stocks.”
Another said the 10 % price band was too narrow as some companies have legitimate reasons to move well beyond these limits.
Brokers were also accused of unethical behaviour. “Some brokers lead this speculative activity. The poor ‘uneducated investor’ just buys into the ‘advice’ and puts the whole market’ at risk,” said a respondent, adding that there was no logic in the price changes of some stocks. |
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