By Ravi Ladduwahetty
Colombo Stock Exchange (CSE) Chairman Krishan Balendra believes the Colombo Stock Market has reached a point where stocks were priced attractively based on fundamentals and investors were positioned to benefit from this.
The CSE surged 125.3 percent in 2009 and 96 percent in 2010 before the Securities and Exchange Commission stepped in to cool-off the overheated exchange and began investigations into rampant market malpractices. The CSE underwent a correction and slumped to 8.5 percent last year. Year-to-date, the bourse has fallen near 20 percent.
"I feel the market has now reached a point where some stocks are attractively valued based on fundamentals. The economic outlook for Sri Lanka over the medium term is positive and the corporate sector is well positioned to benefit from this," Balendra told The Island Financial Review yesterday.
Substantiating on this claim, he said: "This is reflected in the increase in foreign interest in the stock market that we have seen in 2012 - foreigners are net buyers in 2012 to the value of Rs.24 billion. In 2010 and 2011 foreign investors were net sellers in the market."
He said: "This year we have also seen the entry of a high profile sovereign wealth fund into the market (Khazanah of Malaysia) who have invested in excess of US$ 120 million. Apart from the foreign investors it is critical that we increase the local institutional, high net worth and retail participation. The CSE is continuing with its market development activities with a focus on educating potential investors outside Colombo. I am confident that the market will recover given the attractive valuations and the growth potential of the country and the corporate sector."
Explaining the present backdrop, he said: "The stock market is down about 20% this year. Markets have ups and downs - after the big surge that we saw following the end of the war, it is only natural that the market should correct to some extent."
"Furthermore, at the tail end of the bull market that we had in 2010, there was excessive speculation in the market - after such periods of speculative activity, markets generally see a steep and lengthy downturn. This has been the experience in markets worldwide, including in developed markets. There are various other reasons for the downturn; interest rates have increased which has made equities less attractive, the global economic climate is weak and there has been uncertainty over the currency".