Shares and sugar
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As I walked into the garden on this bright and sunny Thursday morning to get a breath of fresh air before starting the day, I was drawn to a heated argument at the gate. Aldoris, the choon-paan karaya, had arrived and the trio appeared to be arguing with him over the prices of his product range.“Aei me kimbula banis wala mila wedi wela thiyenne (Why has the price of ‘kimbula-banis’ – the crocodile-shaped bun with a sprinkling of sugar on top -, gone up),” asked an angry-looking Kussi Amma Sera. “Aiyo Miss, ehseeni wala mila wedi wuna hinda neh (Aiyo Miss, that is because the sugar prices have gone up),” replied Aldoris meekly, unable to counter the combined, vociferous voices of the trio.
“Oyage banis wala mila wedei (Your buns are too expensive),” shouted Serapina, with Mabel Rasthiyadu adding: “Api oyagen hema dama bakeri deval gannawa. Eh hinda, oya sadarana milak aya karanna oney (We are regular customers… you must sell your products at a decent price and retain customers like us.”)
As the argument continued, my mind was on a surge in the stock market which has broken all records, recalling a comment on Wednesday by seasoned stock market analyst Channa Amaratunga
“An interesting angle to consider is whether a rise in the stock market implies that the economy is doing better and vice versa. Politicians often equate the two, but I disagree,” he said, when I sought his views on the market trends.
He said that the stock market is not the economy, especially in frontier markets such as Sri Lanka where larger sectors of the economy such as garments, tea/rubber exports, IT, agriculture etc are under-represented in the Colombo Stock Exchange (CSE).
Good point indeed and reminded me of two versions of the stock market by a politician cum academic who is currently a Cabinet minister. He was a typical two-faced politician: When in power, he would say a rising stock market was a barometer of confidence in the economy. When out of power and in the opposition, his argument was that rising share prices are no reflection of a robust economy!
As I pondered over these points, putting my thoughts together for this week’s column on the stock market, the phone rang. It was Pedris Appo – short for Appuhamy, a retired agriculture expert who does farming. What was interesting is that Appo is also a veteran in the stock market, follows all trends and makes short and long-term investments.
“Hi…hi, good that you called as I was sitting down to write about the stock market. What are your thoughts on this sudden burst of energy in the market when the rest of the economy is in a bad shape owing to COVID-19?” I asked.
“Well there are many reasons for the boom in the market,” he said and began to list them out:
- Interest rates have fallen sharply to single digit levels and these investors are now dabbling in stocks.
- Another reason is that there are limited opportunities for investment. For example, take the vehicle market. Dealers have huge stacks of cash idling, while importers of goods restricted by the import ban also have money to spend – so the only avenue seems to be in stocks.
- The market is driven by huge chunks of local money while foreigners are exiting. Apart from the usual high net-worth investors, there is also a new breed of 40-year-old high net-worth investors who see the share market as their salvation in making money.
- There is no clear evidence but some analysts believe some black money may also be entering the market.
- The difference between the bull-run this time and the pump-and-dump era of trades in 2011-2013 when the market was overheated is that pension funds – the EPF and the ETF – are more on the selling side and not in investing; while the trading volumes are also much larger now than the 2011-2013 fiasco.
- Local companies like those involved in floor tiles and ceramic-ware, are making a killing due to import restrictions with their share prices reaching dizzy heights. Sectors like logistics and added value rubber products are also minting money due to an increase in COVID-19 related exports and air and shipping logistics support.
- While reputed shares are fetching good prices, there are others that are overvalued as investors buy and sell during day trades placing their bets akin to a gambling joint.
- There is also likelihood that some brokers are extending authorised credit to clients.
On Thursday, the All Share Price Index (ASPI) of the CSE reached an all-time high to close at 8,131.25 points beating the record level achieved on Monday, earlier this week. The turnover was Rs. 14 billion, while the volume of trades was 377,652,229, also beating previous records.
Amidst all this hoo-ha, the dizzy trading levels also drew the attention of the Securities and Exchange Commission of Sri Lanka (SEC) which, while welcoming the market sentiment, issued a cautionary note on prohibited conduct leading to market offences and SEC efforts to help investors avoid these pitfalls.
“While there are many records broken, we would urge investors to trade with caution,” a SEC source said. In the 2011-13 period, several investors burnt their fingers when rogue traders played the market in pump-and-dump trading, artificially raising prices of some shares and then unloading them in the market.
“In order to ensure the integrity of the market and protect the large number of investors in the face of the surge in the daily number of transactions, the regulatory and supervisory framework of the SEC has been strengthened by enhancing the capability and capacity of the Supervision and Surveillance Divisions,” the SEC said in a statement.
The 2011-2013 era was a period when two chairpersons of the SEC were eased out of their positions by the then administration due to a barrage of protests by some powerful, high net-worth investors who objected to tightening of regulations to stop the market from insider dealing, pumping-and-dumping and overheating.
In this context, it is important that the current SEC administration should go beyond expressing words of caution on paper and ensuring by deeds of proper surveillance and supervision of the market, the prevention of a repetition of pump-and-dump trades and other unauthorised conduct.
As I wound up my column, it was time for my second mug of tea but found the trio still ‘bashing’ poor Aldoris at the gate. I walked to the kitchen, made my own tea and while drinking it, watched as Aldoris helplessly defended himself over rising sugar prices. What Channa, the stock market analyst, said was true: Rising sugar prices have no connection with the stock market where key sectors of our economy are under-represented.