Financial Times

The Colombo Stock Exchange (CSE) in spite of the dampened investor sentiments that has been present since the North and East tensions, is gearing to boost the confidence of the market on the back of the best ever year it had in 2005.

Director General CSE, Hiran Mendis in his statement, in his annual report statement has said that the CSE enjoyed its best performance to date when the All Share Price Index appreciated by nearly 27.5 percent and average turnover per day topped Rs.12 million during the period January to November, 2005.

The index reached its highest level to date on November 16, reaching 2,551.4 points. The CSE also registered an average turnover of Rs.482 million per day , which is the highest turnover achieved to date).

"The Colombo Stock Market was the most happening place in the country since 2001 and still continues to be so," said Eraj Wijesinghe, CSE Chairman, adding that more and more investors are participating in the stock market, thereby contributing to wealth creation and also reaping its benefits.

As for those involved, domestic investors continued to be the main contributors to the turnover, accounting for over 75 percent of purchases. The increased volumes and turnover indicate that the market continued to provide good investor value compared to other forms despite interest rates edging up.

As for listings, a record Rs 13.8 billion, exceeding the Rs 12.3 billion the year before, was raised through stock market listings – with Dialog Telekom's IPO accounting for Rs 8.5 billion.

Market research undertaken by the CSE offers several reasons why companies do not want to list. One was companies believing that a listing would result in a dilution of ownership and that it would open the doors to corporate raiders.

"There are one or two problems when it comes to listings. With regards to a listing where dilution is a worry, it need not lead to corporate raiders. Corporate raiders are most attracted to companies that are under valued and have untapped potential. In any event, the controlling interest could remain with promoters. A listing on the Main Board only requires a public issue of 25 percent," Mendis said.

Even though private sector investment as a percentage of GDP has increased only marginally over the past few years, funds raised through the stock market and market capitalisation as a percentage of GDP has increased significantly.

Even though this is a positive sign, primary market activities are still low, where "a different approach needs to be taken to encourage companies to list", the chairman said.

"Up to now the CSE has adopted a clinical approach to listings, by limiting its strategy to creating awareness. The exchange intends to change this stance and guide companies through the listing process, the emphasis being on building relationships," he continued.

The CSE will also re-brand the Second Board as the "DiriSavi" Board, in a bid to encourage medium and smaller companies to list. DiriSavi means "assisting effort". "Taking the long term into consideration, the chairman government should provide some form of incentives to attract more companies to seek a listing," Wijesinghe said.

The CSE's branch network also performed well with the Kandy and Matara branches recording an average daily turnover of Rs 13 million, and Rs 9.1 million, respectively. The Kurunegala branch, which was opened in February 2005, recorded an average daily turnover of Rs 3.4 million. The branch network contributed and the trading floor contributed 10 percent of the turnover.

Opening branches has been one of the most important initiative undertaken, according to the exchange and that has helped the geographical diversification of the capital market. The possibility of expanding the branch network in a more cost effective manner is being studied.

A programme to attract Sri Lankan expatriates was launched with the UAE road shows in January and was followed by road shows in Australia and New Zealand in October and November 2005. Events were held in Melbourne, Sydney and Auckland and enabled brokers to make contact with over 700 potential investors.

"The road shows were well received and it is now the responsibility of member firms to follow up on this initiative. An analysis of investment trends confirms that the road shows in the UAE have helped to increase investment inflows substantially. It is too early to measure the success in Australia and New Zealand," Wijesinghe said.

The CSE's increased effort and investment to upgrade its IT infrastructure has paid off with the ATS recording an uptime of 99.6 percent in 2005, in line with international standards. The exchange aims to continue investing in improving its systems and IT infrastructure to meet future needs.

"I am pleased to note that member firms have acknowledged the importance of using the Internet as a method of reaching out to investor," the chairman said, where at present eight provide Net trading facilities, where several others are working towards that goal.

"In time to come, the Internet would be the choice of access to the market and such implementation should be encouraged, Wijesinghe said.