Brokers delighted by talk, lunch with President

•  Mahinda urges brokers to venture overseas, market post-war Sri Lanka among foreigners;  reach out and educate rural investors

• Cautions against pump and dump, thereby avoid sharp price fluctuations endangering innocent investors

• Brokers say ASI dropping 2,000 points, PE down to 13 times from 26 create conducive environment for relaxed rules

The country’s beleaguered stockbrokers yesterday got what is perhaps a new lease of life after a two-hour engagement inclusive of lunch with President Mahinda Rajapaksa, a development described as unprecedented, given it being CSBA's first-ever interaction with a Head of State.

The Colombo Stock Brokers Association (CSBA) led by its President Sriyan Gurusinghe and CEOs of member firms, including top fund managers such as Asanga Seneviratne, had a positive interaction with the President, who was accompanied by Economic Development Minister Basil Rajapaksa, Secretary to the President Lalith Weeratunga, Secretary to Treasury Dr. P.B. Jayasundera, senior officials of the Central Bank and others.

The President had assured the brokers that their recommendations (six in all – see box) would be favourably considered and referred to relevant institutions (SEC and the CSE) for a final decision to achieve interest of all stakeholders.

“We had a very positive meeting with the President and we are very grateful to him for listening to our views on the current crisis faced by the Colombo stock market and priority recommendations to rectify the situation,” a delighted CSBA Chief Gurusinghe told the Daily FT yesterday. He said that President Rajapaksa gave a patient hearing as well as shared some of his insights along with his vision with regard to ensuring a vibrant capital market.

Minister Basil Rajapaksa and Dr. Jayasundera had also shared some of their views on the importance and challenges of the capital market. “I think the meeting saw emphasis from both sides that a vibrant capital market is important to the country, the Government, listed companies, brokers and investors,” Gurusinghe said.

“On our part, CSBA recommendations were aimed at immediately restoring confidence, which is key to the revival of the market,” he added.

President Rajapaksa had stressed that brokers must venture out to promote post-war rebounding Sri Lanka in the capital market overseas, thereby drawing more foreign investors whilst educating and encouraging new investors locally.

“You must drive the stock market internationally and locally. Expand your reach within Sri Lanka and outside and harness untapped money, thereby increasing the capital market’s contribution to the economy,” the President had said.

Appearing to be well-briefed or versed on some of the recent developments, the President had stressed that the market must avoid sharp volatility or price fluctuations so as to minimise losses of those who buy on the rise. “People’s money must be safeguarded,” the President had added, in an indirect reference to the pumping and dumping scenario.

The importance of more listings as well as investor education was also emphasised by the President, who is also the Minister of Finance and under whose purview the Securities and Exchange Commission functions.

Apart from Gurusinghe, several other CSBA members also spoke on the market’s crisis. President Rajapaksa and the team had been told that dwindling activity and the market’s downturn – symbolising loss or lack confidence – was despite sound macroeconomic fundamentals, impressive corporate earnings and attractive valuations. It was pointed out that the Price Earnings (PE) Ratio of the market had come down to 13 times from 26 times a year ago, whilst the ASI had dipped by 2,000 points.

These were among factors cited by brokers as to the right environment being in place for relaxed credit rules and removal of price bands with the replacement of circuit breakers for price discovery and transparency.

The impression conveyed by brokers was that the volatility or heat of the market was long gone and there was space in the market now to relax previously-required stringent rules. “What we asked from the President were things which we can control or by which we can improve the market on an urgent basis,” a broker told the Daily FT.

It was also pointed out that more firms were keen to list on the CSE, but the crisis had put their plans on hold, whilst the appetite for IPOs had come down too. On this, Dr. Jayasundera had chipped in saying IPOs had mostly drawn applications via bank guarantees but brokers had clarified that even if they were excluded, retail applications had absorbed the good IPOs.

Whilst brokers had said they welcomed good regulation, they had noted that the manner in which regulations were introduced, their timing and sequencing was important, rather than being rushed or implemented haphazardly.

The CSBA meeting with the President was hot on the heels of it having separate discussions with the CSE and the SEC. Gurusinghe said both institutions were informed about their planned meeting with the President whilst sharing some of the recommendations broadly.

At the meeting with the SEC last week, CSBA had requested an increase in the limit of broker credit exposure. The SEC Commissioners are scheduled to meet once again today to review and reconsider CSBA recommendations.

Though there are some reservations over the CSBA directly meeting the President without the intervention of either the SEC or the CSE, analysts said that President Rajapaksa would refer the brokers’ recommendations back to the SEC for consideration and take action accordingly.