CSE sees foreigners active: Analysts say some cowboy cash
The Colombo Stock Exchange (CSE) has behaved well contrary to opinions by the naysayers. Egged by foreign traders, the CSE says the bourse recorded a turnaround in the first half of 2017 having started the year on the back of a slow-moving 2016. The Benchmark All Share Price Index (ASPI) has made consistent gains to record an 8.23 per cent gain year-to-date, and as of July 17 stands at 6,741.07, a media release by the CSE said on Tuesday.
Foreign purchases in 2016 have doubled in the first half of 2017 showing an all-time high for foreign purchases in January-June witnessing 24 consecutive weeks of net foreign inflows from the first week of February onwards. The CSE said that the year-to-date net foreign inflow was Rs. 23 billion.
Analysts said that there was a mix of genuine long term foreigners and also some new short term ones that came into the CSE so far this year. The latter, popularly termed as ‘cowboy cash’ by analysts had come during the past three months.
“They are some frontier funds which came and also emerging market funds that CSE attracted during the last six months,” an analyst told the Business Times. While this isn’t necessarily ‘bad’, it’s more important that CSE addresses the underlying issues of better liquidity, analysts say.
CSE CEO Rajeeva Bandaranaike said that growth in foreign activity is certainly encouraging and went on to indicate that foreign investors have identified an opportunity in the Sri Lankan stock market. However the daily turnover has increased last month from Rs. 700 million to Rs. 900 million. Today foreign inflows have been very strong and have increased to Rs. 23 billion. He recalled that 2012 was the record year where the turnover touched Rs. 38 billion per year.
The S&P SL 20 index, which features the CSE’s 20 largest and most liquid stocks has also improved consistently, making a 11.03 per cent gain in 2017 (year-to-date) and closing at 3,882.14 points as of July 17. The growth of the indices in 2017 reflects a reversal of the declining trend from a 9.66 per cent and 5.54 per cent decline in the Benchmark ASPI index in 2016 and 2015 respectively.
New CSE Chairman, Ray Abeywardena told journalists at a ‘meet-and-greet’ event in Colombo recently that liquidity issues will be dealt with by getting more firms to go public. Also the dollar denominated board will be set up later this year which would allow foreigners to trade in US dollars.
The CSE obtained exchange control approval to list foreign companies in the CSE in April last year. A foreign company that seeks a listing in this dollar board has to be first listed in the stock market of that country, and the listing here will be a cross listing of shares – which is when a firm lists its equity shares on one or more foreign stock exchange in addition to its domestic exchange.
Mr. Abeywardena said that this would open up opportunities for regional companies to trade in the CSE and later it would be open to Sri Lankan companies as well. Regional countries like Bangladesh and Pakistan too could benefit from this.
Gulf-based mobile company Ooredoo operating in the Maldives has emerged to be the first company on this board, he said. At the same event, Mr. Bandaranaike said most of the CSE indicators are improving but it was not enough. “If you take communist-ruled Vietnam the daily turnover is in the excess of $88 million and in Bangladesh it’s around $100 million as against the daily turnover of around $6 million at the CSE. The market capitalisation which was Rs. 2.7 trillion has gone up to Rs. 3 trillion today and we need to further increase it.”
Overall trading activity has also improved in 2017, with the daily average turnover recorded for 2017 (year-to-date) marking an improvement to Rs. 911 million from Rs.737 million in 2016.
Foreign purchases’ figures recorded for the first half of 2016 (January – June) amounting to Rs. 31.5 billion has doubled during the first half of 2017 to Rs. 62.6 billion – an all-time high for foreign purchases in the first half of a calendar year.
“Such interest is an expression of confidence in the future potential and growth of our market and makes a strong case for improved involvement among local institutional and retail investors,” Mr. Bandaranaike added.