CSE breathes fresh air with market recovery
The Colombo Stock Exchange (CSE) made a remarkable recovery from last Wednesday onwards for assorted reasons stemming from the expected resignation of Premier Mahinda Rajapaksa to the CSE deciding to display the trading order book on the pre-opening of the stock market after the circuit breakers.
Clearly, Mr. Rajapaksa’s decision not to resign did not bring the exchange down and it must be the order book display where stockbrokers can cancel, amend or enter new trading orders in the 30 minutes cooling-off time after a trading halt. But stockbrokers vehemently argued that this is not the case stressing that a stock market cannot crash forever.
Besides the new feature was introduced more than a week ago. During that time the CSE was coming down quite a bit despite the display, they said.
Analysts said that the cooling-off period allows the traders to basically take a step back and become rational. As such displaying the order book helps because they can amend the orders which assists in recovering the market. “If the same trades are allowed to go forward after the cooling-off time there is no point in a trading halt. Other countries also do the same,” an analyst said. He added that the order book display did in fact contribute to the exchange’s recovery.
A stockbroker said that Wednesday’s incline was mainly due to Expolanka’s hike in share price. This counter rose based on expected high earnings running parallel to the U.S. dollar depreciation, he said. Analysts said that interest rates shooting up, is a big headwind for the CSE going forward.
The effects of the Central Bank devaluing the rupee in March and increased interest rates in April will only be partially reflected in March quarter earnings of companies, Umasudhan Subramaniam, CEO of a financial, business consultancy, and training company based in Doha with a branch in Colombo called Universal Mind Mapper, told the Business Times on Thursday. “We expect it will take a couple of quarters for corporate earnings to get fully adjusted due to lagging effects.”
CSE became the worst performer this year after the Russian exchange. “As the rupee has depreciated from Rs.200 a dollar to Rs.360 a dollar, the threat of further downside risk to the rupee is imminent,” Mr. Subramaniam said adding that investors and analysts need to focus on corporate earnings using a stable currency. For example, a company needs to increase its earnings by at least double the expected amount in rupees to maintain its earnings in USD due to currency depreciation.
Last year, local investors pumped a substantial amount of money into the stock market due to ultra-low interest rates and a lack of other investment opportunities. Currently, the stock market is trading at extremely low valuation multiples. Banks are factoring in huge capital erosion. Analysts noted that the future direction of the stock market would be highly dependent on political factors. Investors would want to wait and watch until they get visibility on the most awaited constitutional reform and change in leadership.
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