Capital market says Bourse still better than investing in Tbills

Monday, 19 November 2012 00:00 - - {{hitsCtrl.values.hits}}

Despite the bearish performance of the Colombo stock market in recent years, it remains attractive with higher returns over time rather than from investing in Treasury Bills, which is often perceived as better.

At last week’s historic joint capital market stakeholder briefing to the media, the performance of and return from the equity market was highlighted.

In an analysis of the performance of the stock market during the last 28 years, SEC’s Acting Director General Prof. Hareendra Dissabandara said it was evident that stock trading had given remarkable returns to its investors.

He said the average market return per year since 1985 was 26.5% where as Treasury Bills have given an annual average return of 14.4%. From the year 2000, the stock market has given an annual average return of 32.8% as against a 12.0% return on Treasury Bills. The average return of the stock market since 2009 is 53.1%, whereas Treasury Bills have given a return of 12.5%.

“These statistics prove that investing in the stock market is a profitable long-term investment though there can be fluctuations in the short-term,” he added.Year-to-date the All Share Index is down by near 9% though in September it gained by 15% on improved sentiments.

Last year the market dipped by 8.5% after two years of rollercoaster gains of 95% in 2010 and 125% in 2009.

While the current lull in the market may appear somewhat discouraging to those who may historically be used to far more upbeat momentum, DNH Financial in its weekly commentary advised investors to take advantage of any price weakness and build a robust portfolio of quality stocks that would outperform.

“Stocks are well likely to reverse their sluggish streak as investors realise that the majority of factors that influence market trajectory are indeed positive and that the current lackadaisical movement of the market is unjustified,” DNH said.

“We advise investors to avoid the herd and start their selective stock picking by adopting a flight to quality investment strategy. Despite the prevailing high interest rates, our belief is that the Bourse will deliver measurable and positive results, provided that the right investment strategy is employed over a reasonable investment horizon. While the equity market has a notorious tendency to rush from one side to another in response to the ebb and flow of optimism or pessimism, we recommend investors to make a directional call, build a quality portfolio and take advantage of what is increasingly becoming a stock-pickers’ market,” DNH Financial added.