CSE: A fool born every second
Today’s stock market is a true reflection of the weakness in the Sri Lankan economy, analysts said noting that it amply shows the lack of proper investments and confidence in the economy.
The Colombo Stock Exchange (CSE) is up 50 per cent so far this year and plenty of young people are buying and ‘jumping’ on to grab opportunities, analysts say. When there’s so much increased demand in the short term the market going up is inevitable, an analyst pointed out. “Many buying shares in the CSE aren’t investors – they are traders making a quick buck,” an exasperated analyst said noting that ‘silly money’ is chasing a few shares propping the market up.
In this situation, the disconnect between foreign investors and their local counterparts is interesting. “The foreigners explore the macro fundamentals, the underlying numbers etc. when investing and they have the entire world to invest while the local investors’ investing options are limited and only confined to Sri Lanka – at least officially,” a stockbroker pointed out.
A second stockbroker also agreed putting the situation down to the low-interest-rate environment and retailers investing and profit-taking in the short term. The CSE data show 40,000 active central depository systems accounts with 28,000 daily transactions by retailers.
Analysts say that the shares which moved up recently are all dollarized companies which show the complete loss of confidence in the rupee-based shares by investors. “About 60 to 70 per cent shares going up in price are companies fetching dollar revenues and trading at high multiples,” an analyst said. He added that some protected industries where imports of comparable products are banned are doing extremely well. “They are laughing all the way to the bank while increasing prices of goods as they go along.”
The pandemic has provided a boom to some companies such as Expolanka PLC in the logistics business where crisis became a blessing. This too is a company fetching in US dollars.
All banking shares hailed as blue chips in their prime two years ago are trading at half of their net asset value. Analysts point out the net asset value of these banks is represented by cash – which right now has little value.
The fundamentals are hardly at play in the current setting of the stock market with the role of social media, different from 10 years ago, exacerbating the situation. As many analysts point out repeatedly there is much more money locally than there ever was and the power of social media is adding a tilting point assisting in the market going up.
The regulators can only do so much. To be fair both institutions (SEC and CSE) have done a massive amount of awareness on social media and in other channels that one cannot miss.
They are also on point with surveillance and regulation empowered by the recent Securities and Exchange Commission (SEC) Act that was passed.
“There is a fool born every day. In the CSE it is almost like every second,” a third stockbroker said.