Financial Times

When greed turns to fear
Fear and greed are said to be the two dominant emotions that drive investors in the capital markets. Those stock market cowboys who have been licking their chops after making good by manipulating share prices in recent weeks would surely see their greed turn to fear upon reading our lead story this week that the markets watchdog is finally getting ready to crack the whip on them.

Channa de Silva, Director General of the Securities and Exchange Commission (SEC) says the regulator has identified three top listed companies whose share prices have been subject to unusual movements recently. The SEC is also preparing to mount a public awareness campaign warning investors about the dangers of such share price fixing and the market overheating. The DG has spoken about the shamelessly open manipulation of share prices in the last few weeks where certain shady investors push up the price of a share they hold and eventually sell it off when it peaks. The unfortunate, ill-informed small investors conned into buying such stocks are then left holding highly over-valued shares.

The manner in which the prices of certain illiquid shares have been pushed up and then dropped by these fixers shows blatant disregard for the rules and regulations that govern the market as well as any sense of ethics or corporate good governance.

It also displays the contempt these people have for the rest of the market and for public opinion. That such price manipulation should continue even after it became known that the regulators had begun monitoring the trend and asking for explanations from company managements, brokers and investors is very worrying. Brokers Asia Securities described in a recent report how "well organised buyers continue to target illiquid, low-priced (in absolute terms) shares with low free floats, with the demand and supply imbalance resulting in exaggerated share price appreciation."

They pointed out that with most of the companies listed on the CSE having low free-floats of under five million shares, there is no shortage of potential targets for such manipulators, with the herd instinct and gambler mentality of the average retail investor adding to the momentum.

Does that mean that the average retail investor is a fool, whose only market sense appears to be to follow the herd and take the kind of bets that would be more suitable in a casino?

There is a growing risk that the investing public as well as those foreign investors whose money we crave would lose confidence in the stock market if such share price manipulation is allowed to continue unchecked.

The Colombo bourse has become one of the world's best performing stock markets in recent months and any crash caused by this irresponsible and criminal market behaviour could wipe out such gains overnight. The country's reputation would also be dented - at a time when it is trying hard to lure foreign investments. Everyone suffered when the market was in the doldrums not so long ago, particularly the brokers.

Those responsible for the smooth functioning of the stock market - regulators and brokers - will have only themselves to blame if such price manipulation leads to loss of confidence among investors. Their efforts to broadbase share ownership has had only limited success as has been their effort to get more firms to list on the bourse. The number of firms listed on the CSE is still small compared with the number registered. It is well known that one reason for this is the reluctance to disclose information as would be required of listed firms.

It is high time the regulators put a stop to criminals fixing share prices if they want to ensure the market retains its good reputation.

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