The diabolical nature of the Colombo stock market has left most investors staggered, while analysts are still trying to make some method of this madness.
The Colombo Stock Exchange’s (CSE) was recently rated as the best performing exchange in the region, but many are raising questions as to whether these impressive statistics reveal the true picture.
The announcement said that in the year to date (YTD) the CSE has performed better than others in the region but analysts say that the market had become divided.
Paradoxical
“Institutional activity in the CSE has dipped remarkably and the retail segment has driven the market growth with the interest on speculative counters. So it is a paradox, though as rational human beings we would prefer to buy stocks which are at a decent multiple and shows strong earnings growth the market momentum has been maintained by counters which have seen their market cap, growing by many fold within a very short time span triggered by aggressive retail and high-net worth trading,” Danushka Samarasinghe, Director Head of Investment Banking TKS Securities (PVT) Limited noted.
He said that the Colombo bourse is caught in the middle, squeezed between the weakening global economy and the heightened interest on speculative counters. According to him, foreign selling is rather an outcome of the funds taking profit and releasing cash to their funders amidst the impending global economic concerns and not a direct result of the Sri Lankan situation. Mr. Samarasinghe also noted that during times of liquidity concerns it is usual for foreign funds to first cut positions in smaller emerging markets and raise cash while it becomes the preferred option especially when the investments are in profit.
Clear split
“As such now a clear division exists amongst the listed counters in the CSE,” he said, noting that stocks with a sound track record with high earnings growth trading at low multiples and the market favourites are trading at absurd multiples.
But he adds that despite valuing fundamentals it is a fact that the ASPI became the best performing market in the region (YTD 2011) thanks to selected counters which would not have appeared anywhere in a fundamental screening process.
Other analysts say when the rest of the world has taken a big hit due to the current debt crisis in Europe with things both regional and global all doom and gloom, the Sri Lankan market holding onto its beginning of the year levels are commendable.
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