Malik moves out, market makes merry!

• Under pressure and blamed for overregulation, Director General quits job exactly one year on to take up Senior Advisor Post in Finance Ministry
• Investors toast news as market’s value jumps by Rs. 61 billion, biggest single day gain in history
• Others term it sad day for effective regulation of capital market

Ending weeks of speculation, influence, drama and suspense, the Securities and Exchange Commission (SEC) Director General Malik Cader is moving out and the news was good enough for the Colombo stock market to erupt in joy though some were sceptical.

Yesterday’s numbers may not bring immediate joy to Cader or his supporters but the Colombo Bourse saw its value jump by Rs. 61 billion, making it one of the biggest single day gains in history.

At one point in time yesterday the benchmark All Share Index had rocketed by 200 points before it finished the day up 2.7% thereby reducing the year to date negative return to 2.77% from Tuesday’s 5.34%. The Milanka Index rose by 2.5% cutting down the year to date dip from 20.6% to 18.6% yesterday. It appears Bourse yesterday reflected sheer rebound in sentiment as turnover was only Rs. 1.5 billion, marginally up from Tuesday though number of trades doubled to 16,883. Top blue chips such as JKH, Bukit Darah, SLT as well as second tier stocks saw their prices rise as news of Cader finally leaving the SEC to take up the post of Senior Advisor, Capital Market Development attached to the Finance Ministry seeped in to the market.

The October 24th issue of the Daily FT in an exclusive and widely talked Page 1 lead article titled “Market or Malik?” the impending exit of Cader, a top professional, and he taking up the post at the Finance Ministry was reported. The development was the climax of what some had wished for whilst another section in the market didn’t want. The more moderate analysts wished neither took place but wanted greater responsibility, accountability and cooperation by all stakeholders.  

Several stakeholders powerful and otherwise singularly blamed Cader and the SEC for killing investor sentiment by haphazard and overregulation.  

It was alleged that SEC during Cader’s short tenure of one year didn’t understand the market dynamics or some of the regulatory measures were irrational without adequate stakeholder consultation. Until yesterday the once the world’s best performer for two years Colombo Bourse was down by over 5% year to date and by 19% from the all time high level in mid-February. Turnover had slumped to two year low and market moving players who wanted a change at the SEC abstained making the overall Bourse restless.

However Cader has been a longstanding staffer at the SEC. Incidentally his exit news came as he on November 1 celebrated first year as Director General appointed by President Mahinda Rajapaksa in his capacity as Finance Minister. Overall he served for 15 years at the SEC. Cader and the Commissioners of the SEC justified their regulatory action though successive, given the feared burst of an artificial bubble and suspected manipulation at the cost of new investors who were lured to the market which was providing high returns. In that context some analysts said moving Cader out of SEC was a big blow and a sad day for regulators and the regulatory system.

Whilst both sides have their own reasons for respective assertions, how the market performs in the next few days will confirm which of the two are more credible.

See Inside for select broker’s commentary on yesterday’s market performance.