SL stocks down due to ‘uncalled for panic’
Investors at the Colombo Stock Exchange.
The Chinese markets are getting ‘hammered’ and major funds are pulling their investments out of China and investing in the West. This is a backlash that emerging markets such as the Sri Lankan capital market has witnessed as most such markets have ‘spillover’ effects from China, share market analysts say. Panic selling mostly by China’s array of small retail investors, early this month sent shares diving, setting off a worldwide reaction and pushing emerging market indices lower.
The slowdown may not only mirror cyclical factors, but also lower potential growth for countries most economically linked to China, according to analysts. The flow of capital out of China and other emerging markets by major funds, investors and companies was US$735 billion out in 2015, seen as the worst capital flight in at least 15 years, reports say. Global Investors are keeping close watch on progress in the American economy as many emerging markets such as Sri Lanka tumble. Analysts argue that corporate fundamentals are fine in Sri Lanka despite the country’s fundamentals being average and that local stocks are down due to ‘uncalled for panic’ by the retail investors.
“The major funds are shifting away from emerging and frontier markets and oil prices are down. Traders are also concerned that Iran will flood the global market with hundreds of thousands of barrels of more oil in the coming months, now that international sanctions on the country have been lifted. All this has a bearing on the Colombo Stock Exchange (CSE),” an analyst said. The Templeton Fund, an emerging market equity fund for an example, has been selling their holding in the Commercial Bank and possibly some other investments in recent times.
With CSE’s large retailer base it seems a panic of sorts has started with large foreign selling that has been witnessed for the most part of last year. This is a major reason why the CSE is down, the analyst said. The markets being “lower-for-even-longer” scenario is forcing many retailers to watch on the sidelines, according to him. “Retailers are worried, they’re heavily geared. In this scenario, there’re margin calls and they’re forced sold when these calls come. This downfall in CSE is mostly uncalled for panic as our local economy isn’t as bad and corporate results aren’t half as bad,” he said.