Ramping up the stock market
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Sudden change of plans. The Sunday Times being printed early this week meant I would be missing the usual Thursday morning conversation at the gate of Kussi Amma Sera, Mabel Rasthiyadu and Serapina. No more listening to snatches of their conversation this week.On this Wednesday morning, Kussi Amma Sera was preparing breakfast – kiribath and katta sambol – while she had already brought my morning tea into the office room as I prepared to write my column on the developments in the Colombo stock market.
At that moment the phone rang. It was ‘Koththamalli’ Fernando, the ‘Kokatath Thailaya’ (oil for many ailments) expert who has a remedy for any issue, on the line. I was happy to take the call as I hadn’t spoken to ‘Koththamalli’ for a long time and it would be nice to listen to his herbal remedy of solving the COVID-19 crisis.
“Hello… hello,” I said greeting him. “Hello,” he replied, adding: “Wanted to call you for many weeks but didn’t have the time.”
“What are your thoughts on the coronavirus pandemic? Does Ayurvedic medicine have an answer to this pandemic?” I asked. “Yes… yes our village doctors should come up with some concoction as a cure. But this is not the reason for this call,” he said. “So what do you want to know,” I asked.
“Well one of my friends who has a small business which has been affected by the pandemic applied for a loan to pay salaries to staff but there is a long delay in approving these loans which are part of the concessions offered by the government to affected businesses. Why is there a long delay? My friend is struggling to sustain his business,” he said.
“From what I have learnt the banks have got thousands of applications and you are right, there is a delay. There seems to be some clarification required from the authorities as many of the applicants don’t have any collateral to offer,” I said. “How can the government expect them to provide any collateral because their properties have already been pledged to banks for previously-acquired loans?” he asked. We then discussed many issues pertaining to the many crises that the country is facing.
One crisis is the stock market and the fact that it was shut for more than a month unlike stock markets in the rest of the world which quickly, amidst curfews and lockdowns, switched to online trading.
The fact that the Colombo Stock Exchange was closed for a long time – and only opened last week – was criticised by many in the trade. Other auctions like the Colombo Tea Auction and the Coconut Auctions swiftly moved to online trading after 1-2 weeks of non-trading.
The stock exchange is perceived as a barometer of confidence in a country’s economy. Thus to most foreign and local investors, the market closure for nearly two months – for the first time in its history – was a bad decision by the CSE and affected its reputation while the regulatory body, the Securities and Exchange Commission (SEC), did not intervene to get it started.
As the Business Times reported last week, the stock market closure during the crisis was a ‘badly managed affair’. Thomas Hugger, CEO Asia Frontier Capital told the Business Times, in our report last week, that “it is difficult to understand why the market was not being operated remotely like many other exchanges in the region or in the world. Hopefully, the management of the CSE has learned from this and will have a better contingency plan in the future”.
Another institutional investor, Mattias Martinsson, CEO and CIO of Tundra Fonder in Stockholm said the closure will certainly hamper future investments in Sri Lanka from emerging market funds. “Foreign investors will require a higher risk premium and will be more careful on their allocation to the CSE,” he was quoted as saying. Such comments are not at all encouraging to potential foreign investors seeking to invest in equity markets in this part of the world.
For the record, the CSE had 290 companies representing 20 key industry groups as at January 2020, with a market capitalisation of Rs. 2,748 billion.
When the market re-opened on Monday, May 11, after the long closure, share prices fell sharply and the CSE had to apply the brakes on sinking prices, announcing a halt in trading on three occasions to prevent the benchmark S&P SL20 index from falling below 10 per cent. The fall in share prices meant billions of rupees worth of share value being wiped out. The same situation occurred on Tuesday with a halt in trading called until the index recovered. By the end of the week, Rs. 61.7 billion worth of share value had been lost due to nervy trading by local and foreign investors, many of whom wanted to exit the market, uncertain of the future. During the week, the SEC and the CSE formed a joint committee to restore some order. It is hoped that, as mandated, this committee will fix the issues of digitalised trading and be right up there with other global exchanges in having an active and vibrant online trading platform.
Latest reports and advice from the World Health Organisation (WHO) are that the COVID-19 pandemic could be here for a longer spell than first anticipated and the UN agency is also urging countries to be cautious in relaxing curfews and lockdowns. A second wave of infections in many of the affected countries hasn’t been ruled out, the more reason why the UN health agency is expressing concern.
This is another reason why the CSE with the support of the SEC needs to lift its game and actively explore an online trading platform and make it work. One of the reasons why this didn’t happen is that brokers had client settlement issues to deal with since there were curfews on and most banks had restricted trading hours, this was a problem.
That’s a feeble excuse since much of the economic activity like the tea auction, rubber auction and the coconut auction would have had similar issues but they found ways to circumvent these problems. If Sri Lanka is to attract foreign investment – though this year would be a difficult year – a well-oiled stock market is a measure of confidence to investors with highest standards maintained to ensure non-stop trading even when crises like these occur.
On Tuesday, turnover at the stock market was Rs. 1.2 billion while the S&P SLS20 gained by 2.11 per cent to 1,886.65 points and the ASPI was up 2.04 per cent to 4,701.03 on Tuesday. While the market seems to have recovered this week after its devastating 2-day run last week, the stock market regulators and the CSE need to wake up and ensure a market that fits other trading patterns in the world.
As I sipped my second cup of tea and was winding up this column, I was alerted by a friend to a catchy Konkani baila song titled ‘Ami Dogi Sezara’ that has gone viral over social media. You can catch it at https://www.youtube.com/watch?v=hlByMBfdgNg if you like. Konkani baila originates from the Indian city of Goa and was introduced by the Portuguese invaders. Here in Sri Lanka, it has been popularised by the Batticaloa Burghers. One thing was clear during the COVID-19 lockdown: There has been a lot of lovely music and original compositions, many COVID-19-related that have helped to ease the boredom in homes during the lockdown. Music has indeed been a saviour in these trying times.