Financial Times

Stock market: Something amiss
The Colombo Stock Exchange is Asia’s top performing bourse this year and was once called the world’s best performing emerging market. The CSE has been touting the market’s spectacular rise since September 2001, outperforming more mature and bigger markets, and its website invites investors to “be part of Asia’s best performing stock market.”

It proudly proclaims that the All Share Price Index (ASPI) has recorded a mammoth growth of 407 percent from October 2001 to July 2005 and that the CSE is one of the best performing stock markets globally since 2001 with a consistent annual growth of 30 percent in the ASPI for the last four years.

This year alone the ASPI has increased by 540.3 points (36 percent) while levels of activity have also shown a significant increase with average daily turnover increasing from a low of Rs 44 million in 2000 to Rs 445 million in 2005.

These are certainly achievements to be proud of. But are they for real? How accurate are these performance indicators?

We don’t like to spoil the party but these are legitimate questions that need to be asked, given the startling revelations about the activities inside our corporate boardrooms and the stock market made at last week’s seminar on the rights of minority shareholders organized by the Institute of Chartered Secretaries and Administrators.

This is all the more so since much of the money that’s been sending the Colombo bourse into the stratosphere is the hard-earned savings of a hapless investing public who do not have many other investment choices as interest rates on savings are still negative.

Surely there is something greatly amiss in our stock market, the organizations regulating it and listed companies if the speakers at the seminar – who have earned respect and recognition in their own chosen fields - are to be believed. They described a catalogue of corporate crime committed by the gentry occupying some of our boardrooms that would make a seasoned conman blush.
These horror stories of corporate misdeeds have largely gone unreported for the simple reason that they have not been proved, or even investigated given the weak nature of our laws and capabilities of regulators.

Former Ceylon Chamber of Commerce chairman Chandra Jayaratne, who has been crusading for improved standards of corporate good governance, even went to the extent of suggesting that many of the gentlemen calling themselves directors and occupying positions on the boards of some listed companies would have been behind bars had the laws and regulators been more effective.

The picture painted at the seminar of our boardrooms and the bourse was a rather gloomy one and certainly does not inspire much confidence in our corporate sector or those trading in and regulating the stock market.

Minority shareholders apparently stand no chance if the directors of companies in which they have invested and the brokers who trade their stocks are bent on cheating them.

This was the conclusion of R. Senathi Rajah, senior partner, Julius & Creasy. Another speaker, Dr Noel Wikramanayake, consultant to the Association of Stock Market Investors and a vociferous critic of stock market misdeeds, called the whole thing a big racket and accused brokers of brazenly manipulating share prices.

He was also harshly critical of ignorant investors throwing good money after worthless shares whose prices are being artificially inflated.

The only alternative, given the inability of our laws and regulators to better supervise the market and listed companies, seems to be for shareholders to demonstrate a big show of no confidence in those listed firms that do not practise good governance and to boycott crooked brokers.

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