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| Ups
and downs of stock market investing Brokers said that the advent of UK-based fund, Elgin Investments, triggered the bull run to a great extent, when it bought into some blue chips including NDB. Relatively new entrants to the Colombo Stock Exchange such as the Janashakthi fund, high-net-worth investors such as Dhammika Perera, the Captains, Shankar Somasunderam, retailers and unit trusts later joined in the fray to send the market sky-rocketing. Forced selling and profit taking triggered the downturn, said Naren Godamune of DFCC Stock Brokers. Many investors could not hold on to their shares in the long term and the over heated market dipped on thin volumes. Former stockbroker and present Manager Investment for the Delmege Group, Dimantha Kohobanwickramage, had a different perspective. He said that
even though there was genuine buying at the start of the bull run,
news of the rejuvenation of the Colombo bourse began to attract
many new investors as well as investors who had been away from the
market for nearly a decade. The fundamentals
of brokering is to 'know your client', he explained. People who
usually buy 10,000 shares were placing orders for 200,000 and when
the market was on a correction, the brokers realized that some investors
couldn't pay for those shares. Brokers were then stranded with millions
worth of unpaid shares, which they have begun to re-sell at prevailing
prices, sending the market on a downward trend. He warned that if the capital market was to develop, then there needed to be better regulation by the Colombo Stock Exchange and the Securities and Exchange Commission, together with a greater degree of self-regulation by the brokers. However, a senior CSE official denied that brokers were undergoing a settlement crisis and said it would have been brought to its notice had the problem been serious. "In every market you do get the odd defaulter, but then the broker can settle it by re-selling the shares he has purchased at the market price and then claiming the difference from his client," he said. During the bull run, brokers were merely executing orders almost as if they were post boxes, Kohobanwickramage said. Many investors were disappointed with the services of brokers. "As investors, we pay a brokering fee for the service of advising a client on how to invest money on shares with sound fundamentals, rather than act on speculation," he said. Brokers needed
to be more sophisticated and advanced so that they could give proper
guidance to the investing public who depend on their advice and
judgment. Then the market would be a proper tool of investment rather
than a 'casino', he said. Many people made gains from the bull run and there was a considerable amount of margin trading and fund inflows due to the tax amnesty. Hajji Yusuf, a high-net-worth investor in four blue chip companies, said that the bull run was "an absolutely great experience" which has prompted him to invest more heavily in the stock market. Having started
investing just a year ago, Yusuf said that the rally saw him make
returns of up to 125 percent. He was optimistic that another bull
run was on the cards once the government set up the interim council
in the north-east. Despite high profile investors netting in huge profits, many of the retail investors were groaning under the weight of severe losses incurred over the years. D. Wijesinghe of CITY RIGHTS, an organization dedicated to protect small investors, said that the bull market only helped them cover previous losses. He said that except for the shares in blue chips and NDB, most of the other stocks remained unsatisfactory during the bull-run. "If you take Asia Capital, it was originally sold at Rs. 30 but is now selling at only Rs. 8 even after the bull run," he said. Chandra Wickremasinghe, another retail investor, said that he sold most of his shares at a marginal profit as soon as the market turned bullish, so when it peaked he had no shares to sell. Many small investors who didn't know much about trading were fortunate as they held on to their shares and managed to sell it off during the peak after hearing about the prospects of the market in the media. Others were not so fortunate. Staring dejectedly at the trading screen on the floor of the CSE were J. Weeratunga and Cyril Fernando. Having been an investor for the last 40 years, Weeratunga said that the bull run was only short-term, which did not have any effect on retail investors who had been incurring losses. Weeratunga had bought shares of C.W. Mackie at Rs. 60, which he says is now worth only three rupees. Despite the sharp rise in the All Share and Milanka price indices, most shares he had invested in were on the downward trend. Cyril Fernando said that he was disappointed at the way the market was fluctuating. He had bought shares in The Finance Company at Rs. 100 each and the market value at present was only Rs. 18. Both investors had also invested in shares of Coca Cola, Reckitt and Colman and Walkers Tours, which had been de-listed from the stock exchange, despite the companies reporting profits. "It's a risk we have to take, and companies that de-list offer paltry sums for the shares we bought at high prices," he said. "The stock market is now a casino, and investors have been reduced to gamblers." Other, more savvy retail investors, said small investors should have a better understanding of the market. "You must have enough money to play the market and know the companies whose shares you trade in," said one. Brokers would also have found it difficult to cope with the sudden flood of orders, he said. The pressure from a whole host of new investors clamouring for shares might have forced them to be more prone to making mistakes. S. Jayawarman, President of the Unit Trust Association of Sri Lanka, was elated at the performance of all Unit Trusts during the bull run, and said that all equity funds benefited due to the recent upsurge in the market, which had been in the doldrums for years. "I believe that these gains have created more faith in the Unit Trust vehicle as a good long-term investment," he said. The key benefit of a Unit Trust is that it enables funds to be switched from equity to income as and when each market becomes attractive. Naren Godamune of DFCC Stock Brokers said that unlike the previous bull market, the significance of the recent one was that it was driven by local investors. Although foreigners were showing keen interest in the market, their participation was still marginal since the CSE had still not got back into the Morgan Stanley Capital International Index that would have prompted foreign funds to look at the bourse. Furthermore, foreign investors were also wary of the uncertain political climate. Dushyanth Wijayasingha, Head of Research of Asia Capital, said that the bull run had made the stock market more attractive for companies to list in. Deficiencies such as the low valuation of shares in terms of raising capital were obstacles of the past. He expects companies to have rights issues within this period. Increased market activity also means brokers will have to bolster their staff, especially in sales and research, which were downsized during the long bear market. Despite the current enthusiasm among most investors, some big funds are still cautious. A senior official at the Employees' Provident Fund, which has Rs. 300 billion, the country's biggest fund, said it has invested only 0.5 percent of its money in stocks, with the rest in government securities. "We have no reason to be enthusiastic about the bull-run, because we don't invest in the short term," he said. The fund is cautious about investing in the private sector but recently bought shares in Sri Lanka Telecom and Apollo Hospitals. Kohobanwickramage said that the two government funds, EPF and ETF, needed to play a dual role when investing in the market. While earning sizeable returns for its members, it should play an important part in developing the capital market. Private sector fund managers with experience in trading must handle these government funds, if they are to play a more constructive role in the market, he said. "Trading is a totally different ball game and I don't think they have the experience." |
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