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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Don’t judge EPF investments in Bourse too harshly

Don’t judge EPF investments in Bourse too harshly

Go down  Message [Page 1 of 1]

sriranga

sriranga
Co-Admin
By R.M.B. Senanayyake

Dr. Harsha de Silva has good grounds perhaps for his criticisms of the EPF investments in the stock market, but his criticisms are having a destabilising effect on the stock market, which was stabilising after a long decline.

There are some facts about investment in the stock market by any large investor.

This is because our market is too small. The average trade is only a few thousands of shares. Whenever a fund or a large investor wants to buy a large quantity, he has to accumulate over a period or his broker has to consult other broker firms and ascertain if they have such large quantity for sale.

Soon word gets around that there is a large buyer for such and such a share. The natural reaction is for such brokers to pass the information to their clients who have any big quantity of such share as they seek to find out if they would like to sell to obtain business for them. Soon the whole market gets to know that some investor or fund is in the market as a buyer for such and such a share.

In the case of foreign funds, they give limits to the broker which they cannot exceed. If they cannot get the share at their price, the foreign firm will drop the purchase and move on to some other share or give up buying altogether. But in the case of a local fund like the EPF, they would prefer to buy the share their superiors have decided on.

The brokers will quote higher prices and persuade the local fund that they have to pay a premium if they want to buy that share. This scenario gives room for broker firms and employees in such firms to do what is called front-running by the regulatory authorities. They buy or advise their clients to buy hoping to sell at a higher price later when the big buyer enters the market. So the EPF as much as other local funds have to pay higher prices for their purchases because they want quantities larger than available in the market in the usual course.

It is not only difficult for a large investor like the EPF to invest in our small market. It is more difficult to get out. Many investors are holding shares which they have bought at high prices during the bull market of 2010 and 2011 first half. These investors are carrying unrealised losses in their portfolios. So is the EPF.

Unlike these investors, the EPF could not have got out in the falling market without causing a total collapse of the market. So the EPF held on and like so many other investors it is carrying large unrealised losses. The EPF is allowed to invest only 6-7% of its collections.

For years, broker firms were demanding that the EPF, the largest source of savings in the country, should invest in the stock market. It is in recent years that the EPF began investing in the stock market. It must gather experience and learn the hard way to avoid the pitfalls and perils in the market. But let us not be too harsh in condemning it. I wonder whether the EPF should be a market maker instead – buying up shares when they reach low levels and selling them when they go too high. But the EPF should continue to be in the market for the long haul.
http://www.ft.lk/2012/07/02/dont-judge-epf-investments-in-bourse-too-harshly/

http://sharemarket-srilanka.blogspot.co.uk/

K.Haputantri

K.Haputantri
Co-Admin
RMB has waken us up to some of the realities of our small share market but what warries me is some of the EPF purchases in question appear to be fraudulant. i.e. Influential people trying to use the public funds for their own benifit. Such transactions do more harm than good to our small share market. ?Can the citizons not be harsh on such daylight robberies.

gamaya


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
"In the case of foreign funds, they give limits to the broker which they cannot exceed. If they cannot get the share at their price, the foreign firm will drop the purchase and move on to some other share or give up buying altogether. But in the case of a local fund like the EPF, they would prefer to buy the share their superiors have decided on."
Isn't this what any ordinary person with common sense would do. But it was said EPF portfolio management was carried out by experts in the field.

"It is not only difficult for a large investor like the EPF to invest in our small market. It is more difficult to get out."
What bullshit. They just need to follow what foreign funds are doing.. For example foreign funds are in the buying side right now, they were in the selling side in 2011.

"It must gather experience and learn the hard way to avoid the pitfalls and perils in the market."
Who is this "it"? We all know that the decisions were made by experienced experts in the field of fund management..

What Crap is this?

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