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‘It’s all about Mahinda Chinthana sir..’
Now who else is there to blame? Earlier it was the banks which did not lend enough money to the Stock Market. So the Central Bank directed all the commercial banks to remove the 5 percent restriction on margin lending. Then it was the regulatory restrictions on broker-credit. The Securities and Exchange Commission (SEC) last week removed these restrictions and allowed the brokers to lend 3 times of their adjusted capital, increasing the amount of credit in the market by Rs.5 billion. Alas, the market is still in red! Ain’t it a puzzle?
Now who else is there to blame? Earlier it was the banks which did not lend enough money to the Stock Market. So the Central Bank directed all the commercial banks to remove the 5 percent restriction on margin lending. Then it was the regulatory restrictions on broker-credit. The Securities and Exchange Commission (SEC) last week removed these restrictions and allowed the brokers to lend 3 times of their adjusted capital, increasing the amount of credit in the market by Rs.5 billion. Alas, the market is still in red! Ain’t it a puzzle?
The Colombo Stock Brokers Association (CSBA) and a few high netw0rth investors met with the President Rajapksa towards the end of last year to complain to him that the stock market regulators were preventing Sri Lanka becoming a ‘financial hub’ (as envisaged by ‘Mahinda Chinthana’) by bringing in rules that hinder the development of a vibrant capital market. In this regard, the CSBA came up with five requests, among them extension of broker credit and removing the 5 per cent limit on margin lending were highlighted as key policy moves in bringing back the former glory of the Colombo bourse which was rated the Asia’s best performing market two years consecutively.
As everyone knows, the meeting was followed by the controversial resignation of the then Chairperson of the SEC, Indrani Sugathadasa and the appointment of a new Chairman, former Parliamentarian and entrepreneur Tilak Karunaratne. Under Karaunaratene, the brokers were given the credit extension they asked for and even before his tenure began the 5 per cent restriction on margin lending was removed. Thus the ideal ground was prepared for the brokers to create a vibrant capital market in line with the ‘Mahinda Chinthana’.
The credit extension however totally failed in enhancing market performance and uplifting investor sentiment. Since the SEC announcement about the relaxation of broker-credit, the market did not close positively even on a single day despite the predictions of the bourse performing wonderfully once the credit flows in.
Then came the most shocking statement by the CSBA President saying that he was not at all disturbed by the dismal performance of the market even after the credit extension. The Daily Mirror quoted Gurusinghe saying that brokers were not concerned about the market ending up or down but the turnover -- “With the credit relaxation we didn’t want to see the market go up, but to increase the investor participation and maintain a healthy turnover”- The Daily Mirror, January 18, 2011.
Isn’t there a contradiction between what the brokers promised the President Rajapaksa and the statement of the CSBA President? He has clearly stated that their concern was a healthy turnover and not market indices, the indicators which show the performance of an equity market. It is strange to think about a vibrant market when the two main indices of a market are sliding 0.5 to 1 per cent every day. The turnover represents the market activity and of course a high turnover also indicates that stockbrokers are making enough money through increased number of transactions.
In the meantime, those who have vested interests have re-started to play their game by implying that SEC has again commenced investigations and sending letters to those who were suspected to have perpetrated stock-related offenses.
It seems that these groups are running out of cards and now want to imply that the market is not going up because of SEC investigations. It is no secret that SEC summons investors/brokers and inquire about suspicious share dealing almost on a daily basis. So are they suggesting that the SEC should stop doing its job to let the market go up?
As we have said in a previous column, the Colombo bourse is subjected to all the problems a frontier market faces; lack of liquidity and foreign investments, lack of free float, regulatory loopholes or over-regulation, a few high networth Investors (HNWs) who literally control the market, a set of retail investors who follow these HNWs on the basis of a herd mentality etc.
Moreover, the present economic situation locally (where interest rates are going up and LKR is under tremendous pressure) is acting as a major impediment in boosting the Colombo bourse. On the other hand the deepening Eurozone crisis is prompting foreign investors to sell their investment which in turn creates a net-foreign outflow. However analysts say that foreign investment will flow into the country’s equity market when the stocks in the Colombo bourse are realistically priced. They further pointed out that the market correction that started in latter part of 2011 is continuing despite a credit relaxation by the regulator
By Mr. Market
Now who else is there to blame? Earlier it was the banks which did not lend enough money to the Stock Market. So the Central Bank directed all the commercial banks to remove the 5 percent restriction on margin lending. Then it was the regulatory restrictions on broker-credit. The Securities and Exchange Commission (SEC) last week removed these restrictions and allowed the brokers to lend 3 times of their adjusted capital, increasing the amount of credit in the market by Rs.5 billion. Alas, the market is still in red! Ain’t it a puzzle?
Now who else is there to blame? Earlier it was the banks which did not lend enough money to the Stock Market. So the Central Bank directed all the commercial banks to remove the 5 percent restriction on margin lending. Then it was the regulatory restrictions on broker-credit. The Securities and Exchange Commission (SEC) last week removed these restrictions and allowed the brokers to lend 3 times of their adjusted capital, increasing the amount of credit in the market by Rs.5 billion. Alas, the market is still in red! Ain’t it a puzzle?
The Colombo Stock Brokers Association (CSBA) and a few high netw0rth investors met with the President Rajapksa towards the end of last year to complain to him that the stock market regulators were preventing Sri Lanka becoming a ‘financial hub’ (as envisaged by ‘Mahinda Chinthana’) by bringing in rules that hinder the development of a vibrant capital market. In this regard, the CSBA came up with five requests, among them extension of broker credit and removing the 5 per cent limit on margin lending were highlighted as key policy moves in bringing back the former glory of the Colombo bourse which was rated the Asia’s best performing market two years consecutively.
As everyone knows, the meeting was followed by the controversial resignation of the then Chairperson of the SEC, Indrani Sugathadasa and the appointment of a new Chairman, former Parliamentarian and entrepreneur Tilak Karunaratne. Under Karaunaratene, the brokers were given the credit extension they asked for and even before his tenure began the 5 per cent restriction on margin lending was removed. Thus the ideal ground was prepared for the brokers to create a vibrant capital market in line with the ‘Mahinda Chinthana’.
The credit extension however totally failed in enhancing market performance and uplifting investor sentiment. Since the SEC announcement about the relaxation of broker-credit, the market did not close positively even on a single day despite the predictions of the bourse performing wonderfully once the credit flows in.
Then came the most shocking statement by the CSBA President saying that he was not at all disturbed by the dismal performance of the market even after the credit extension. The Daily Mirror quoted Gurusinghe saying that brokers were not concerned about the market ending up or down but the turnover -- “With the credit relaxation we didn’t want to see the market go up, but to increase the investor participation and maintain a healthy turnover”- The Daily Mirror, January 18, 2011.
Isn’t there a contradiction between what the brokers promised the President Rajapaksa and the statement of the CSBA President? He has clearly stated that their concern was a healthy turnover and not market indices, the indicators which show the performance of an equity market. It is strange to think about a vibrant market when the two main indices of a market are sliding 0.5 to 1 per cent every day. The turnover represents the market activity and of course a high turnover also indicates that stockbrokers are making enough money through increased number of transactions.
In the meantime, those who have vested interests have re-started to play their game by implying that SEC has again commenced investigations and sending letters to those who were suspected to have perpetrated stock-related offenses.
It seems that these groups are running out of cards and now want to imply that the market is not going up because of SEC investigations. It is no secret that SEC summons investors/brokers and inquire about suspicious share dealing almost on a daily basis. So are they suggesting that the SEC should stop doing its job to let the market go up?
As we have said in a previous column, the Colombo bourse is subjected to all the problems a frontier market faces; lack of liquidity and foreign investments, lack of free float, regulatory loopholes or over-regulation, a few high networth Investors (HNWs) who literally control the market, a set of retail investors who follow these HNWs on the basis of a herd mentality etc.
Moreover, the present economic situation locally (where interest rates are going up and LKR is under tremendous pressure) is acting as a major impediment in boosting the Colombo bourse. On the other hand the deepening Eurozone crisis is prompting foreign investors to sell their investment which in turn creates a net-foreign outflow. However analysts say that foreign investment will flow into the country’s equity market when the stocks in the Colombo bourse are realistically priced. They further pointed out that the market correction that started in latter part of 2011 is continuing despite a credit relaxation by the regulator
By Mr. Market
