Crisis-hit CSE at convoluted crossroad

Monday, 31 October 2011 00:00 - - {{hitsCtrl.values.hits}}

The Colombo stock market, not so long ago the world’s most consistent best performer, has been reeling of late. Apart from the dip in indices, the activity levels are fast eroding as confirmed by two year low turnover levels. If one compares current status of the market as against the all time high, the performance confirms that the Colombo Bourse is facing its biggest crisis marred by allegations and counter allegations on manipulation, overregulation, influence of high networth investors and plight of small investors. In comparison to 2011 Valentine’s Day all time high of Rs. 2.6 trillion market capitalization, last Friday’s closing reflects a Rs. 319 billion in value wiped off. In terms of All Share Index, the dip is near 19% and on the basis of MPI, the plunge is near 23%. As per the year to date yardstick, the ASI’s and MPI’s dips are 4.3% and 20% respectively.

If one were to verify whether overregulation has actually impacted the Bourse, then it is a mixed view. In comparison to the level at which Bourse was by 2010 July - the trigger month of regulatory action to tackle with the so called bubble, the ASI has gained by 23% whilst MPI had dipped by 3%. Market capitalisation reflects a Rs. 589 billion increase between August 2010 and October 2011.

Though critics today are quick to blame overregulation to market’s misery, the February peak was amidst price band, credit rules and other moves which the SEC justified as relevant given the unprecedented indiscipline. Whilst SEC was also happy that good regulation was paying off, today however sentiments are different. This period was also beset with local and global issues that have a bearing on equity market investments. Some analysts prefer to point to February 2011 peak as a benchmark and if so the Bourse is in the dumps today. In another analysis, the current year to date negative return could also be compared with year to date return of over 50% as at July and 90% as at late October 2010. In an overall assessment how the Bourse had performed during the past 14 months (August 2010 to October 2011) has caused strong division with regard to the contributory factors ranging from much needed correction from post-war dizzy heights, investor confidence losing steam owing to local and global issues to overregulation with multiple regulatory action. Some of those who don’t take sides point to the old idiom 'what goes up must come down'!

From an independent perspective the Colombo stock market is certainly facing its biggest crisis and coming out of it would require an honest assessment, responsibility and joint action by all stakeholders.