CSE: A gamblers’ paradise
The Colombo Stock Exchange (CSE) is fast seen becoming a ‘gambling joint’.
High-profile traders with a lot of cash in hand and no place to park it are ‘playing’ the market, at the risk of denting the good sentiment in the CSE, stock market analysts observe.
It is important for retailers to be educated and invest in the market rather than cry spilt milk like in 2011 –’13 era when retailers got caught in the pump and dump cycle, they said. Unlike then, there is a fresh set of high-profile traders – doing, basically the same thing, with one major difference though: At that time, mainly high net worth investors were unloading shares on state institutions. It is not being seen during this time and for good reason.
Certain stockbrokers noted that there is almost Rs. 1 billion in fresh cash coming into the market every day and that day traders are making 10 per cent a day in the CSE. They make a bit of easy money, and then invest a bit more and this trend snowballs. It is important to remember that this is a demand/supply situation where supply will become low and share prices will drop, an economist pointed out.
By 2020, new investors in the CSE were up by 10,316 to 30,158 showing a 51 per cent growth year-on-year. In the same period, the average daily turnover increased by four fold from Rs.1.9 billion to Rs. 6.9 billion.
The phenomenal turnover is dominated by local traders. Within the local participation, there is anecdotal evidence that there are more high net worth individuals and retailers than unit trusts or companies buying shares.
Total foreign participation is more or less ignorant. This year, till January 12 there was Rs.1 .1 billion net foreign outflow. Last year this figure was Rs.51 billion.
Foreign contribution was 3.5 per cent to the total turnover last year as against the 20 per cent in ’19. The statistics tell a story – a part resemblance to that of 2011 –’13.
“The market is doing very well and we are very happy about it. But the investors – especially the new ones – should be cautious in following the herd instinct and maybe following certain social media accounts like certain Twitter and WhatsApp groups and also certain notorious investors,” an analyst cautioned. He added that blatant manipulation is less than what was a decade ago – it is more subtle now and is played on social media which is awash with stories about how individuals have made cash on the CSE. “They use more social media which wasn’t available 10 years ago, or not available in this scale. Most social media accounts are anonymous – or avatars,” a second analyst said.
Most traders think that the stock market is a get rich quick vehicle. “Now most start thinking about making profits one hour down the road – much less one day,” a stockbroker said noting that as long as these traders can make a buck most aren’t interested in long-term benefits of investing in the CSE. He said that some new retailers are unaware of how they get played out much less aware about this run not being a long bet.
He also added that one can get a really good return if the market is ‘played’ clean. “This is what the new investors should really think about. And also do their own homework when entering the market.”
Meanwhile, the capital market regulator, the Securities and Exchange Commission (SEC) has extensively posted on its social media accounts to educate the public. There are detailed descriptions of identify what conduct is ‘prohibited’ and what will amount to an offence. “It is important to follow these guidelines,” a third analyst added.
Someone in the know told the Business Times that the SEC is very aware of certain situations and have beefed up their surveillance division. “When they see early signs, they literally try to put out the fire before it becomes something big,” he added.
But, what’s happening at the CSE is not entirely the ‘players” fault. The analysts point out that what is going on is a reflection of the anomaly in the entire economy. There are no investment opportunities, there are low interest rates, some businesses are slapped with import sanctions, there is a subdued economy and those with cash and ‘nowhere to put it’ will ultimately turn to the stock market “Why would anyone keep their money in the bank to earn an interest rate of 4 per cent when there’s a daily 10 per cent return? CSE is also an investment opportunity for the lack of it,” another analyst reasoned. It is a fair question.
But many will be burnt. Many shares have increased over 700 per cent. CIC is one. Dipped Product PLC has increased by 600 per cent, Browns PLC shot up by 300 per cent, Expolanka, Kalamazoo, Industrial Asphalt, Browns Investment have all increased. The list goes on.
All in all, it boils down to greed and fear of missing out (FOMO). “It is not only in Sri Lanka. This is rampant all over the world,” the first analyst said citing the US as a prime example on all sorts of crazy things happening in other stock markets.
It is pointless cautioning the old retailers, he added noting that they are seasoned enough to be cautious.
At the risk of sounding pessimistic, the sooner one realises this run will not last forever will be the better.