The Colombo share market sets new highs almost every day. ‘All’ stock market participants are beyond happy. They want to continue to be happy. They want this run to last – forever. Forever is far-fetched with the overheating of the market, all ready to dissipate anytime. If, however is the catchword. Analysts predict that if [...]

Business Times

Overheated Colombo bourse, a magnet for newbies

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The Colombo share market sets new highs almost every day. ‘All’ stock market participants are beyond happy. They want to continue to be happy. They want this run to last – forever.

Forever is far-fetched with the overheating of the market, all ready to dissipate anytime. If, however is the catchword.

Analysts predict that if the low interest rate regime prevails, if excess liquidity in the banks is maintained, if the rupee keeps on depreciating, if import restrictions aren’t lifted and if there are no attractive, available investment opportunities, these ‘highs‘ in the share market will be intact and more and more new traders will join.

Apparently, no one is to blame for the catch 22 situation. However, it is prudent to use ‘brains’ before the run breaks.

“By December last year, the Colombo Stock Exchange (CSE) started getting heated. Market players were always making money. Then came the bank deposit holders with maturing deposits, importers with nowhere to put their money and others who just wanted an ‘avenue’ to pack their money.  By December, fresh cash came into the market and it started growing,” an analyst explained.

With listed firms declaring results and some declaring share splits, the traders flocked into the market. “It was a walk in, walk – out situation at the CSE,” the analyst added.

The CSE is a place that is churning a daily turnover of Rs.12 billon which is a magnet for many more newbies.

CSE‘s main All Share Index was up by 30 per cent for the year as of Thursday with the S&P rising by 33 per cent for the month as at Thursday.

Foreign selling is rampant. As of Thursday, from the start of the month – net foreign selling was Rs.6.18 billion. Foreigners are selling blue chips like John Keells Holdings, LB Finance and Royal Ceramics for instance. But some foreign investors still have faith.

Mattias Martinsson, Founding Partner and Chief Investment Officer of Tundra Fonder AB, a Swedish-based investment fund told the Business Times that it’s always difficult to discuss general market development as they are very focused on stock-picking. “In our holdings we see good earnings growth for the quarters ahead and we don’t feel valuations are stretched.”

Inflation is rising. So far, no one is burnt and it is a firefly situation. All anyone can say is ‘buyer beware‘.

The capital market regulator, Securities and Exchange Commission (SEC) is constantly advising and letting people know on best practices. Recently on its social media, the SEC had advised investors to check the fundamentals before investing.

The stock broking houses and their managements were informally advised that it is a business they run. “It was intimated to them that if they do things that would harm the sanctity of the market, it is their business that will suffer,” a source told the Business Times.

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