Is the market in danger?

Monday, 16 March 2015 00:07 - - {{hitsCtrl.values.hits}}

Many thought that the regime change would be the harbinger of prosperity – a thriving economy, a buoyant stock market and a flood of foreign investment. Two months into the “utopia” of change, the reality is far from that envisaged. The stock market, prior to the election stood at a modest but stable 7,300 points. All sentiments were that a bull run would soon ensue with the market witnessing an unprecedented gain. This clearly never materialised, and a closer analysis sheds some light into this disappointment. Firstly, what countless investors failed to appreciate was that the market was in fact overvalued. Although a market PE of 19 of all the companies comprising the market were, all in all, hyped. The speculative investments that fuelled such an inflated valuation have now simply run out. Thus, it came as no surprise that the market did not rally as anticipated. Secondly, another formidable shackle on the market is the budget proposals put forward by the current regime, which have done little to muster up business and investor confidence. More importantly, the move to collect 50 billion from the top most companies in the market has irked many investors and analysts. This policy has, no doubt, boomeranged and the stocks of these companies are in the doldrums. The market, disappointingly, stands at 7,000 points today – a far cry from the much-foretold “bull run”. Overall, it is no exaggeration to say that the policies presently in force have reduced a staggering 200 billion in terms of market capitalisation – all this in an ill-thought attempt to muster 50 billion in revenue! Such proposals clearly contribute to forestalling the resurgence of our once-thriving market. Finally, it is an often heard saying today, in the brokering and investor community that the market regulator is currently on a path of vindictive reprisal, in an effort to drive home “a lesson” to all market participants. Such rhetoric by the regulator instills unwarranted fear which keeps all investors away. Thus, there is no speculation in the current market. It is trite knowledge that a degree of speculation is necessary for a healthy market. Speculation is not manipulation. This distinction must be made clear. Speculators, simply look for opportunities where significant price movements are likely. All speculators have now resigned themselves from the market in trepidation of the regulator. Yes, market malpractices must be clamped down upon and those responsible penalised, but instilling a fear psychosis is counterproductive. Regulation of the market on mere gut sense, sans professionalism and experience, may do as much damage to the market as market malpractices. The way forward is for the Government and the regulator to follow a non-interventionist policy and allow the market forces to find its own equilibrium. Let the forces of demand and supply interplay to bring about stability and the gradual revival of the market. Laissez faire should be the key word at play. A. Silva