Record stock indices - who are we fooling?

Recently the media announced that the Colombo stock market had reached an all time peak reaching 3,016.42 points.

There are 237 companies listed in the Colombo Stock Exchange and of these 148 companies (on the day the announcement was made) trade under the main board, 17 under the 2nd board and 12 under default, totaling 177 companies. Of this eight companies recorded several million volumes of trades. Those include AMW, Dialog, Lanka IOC, LMF, Nawaloka, SLT, Tokyo Cement (NV) Seira Cables. On the first two days of trading (Monday and Tuesday), SLT rose by Rs.4.50, AMW Rs.2.50, LMF by 2.25 and Tokyo (NV) by Rs.2.25. The increase made by the balance four cannot be considered as appreciable when compared to the others -- companies ranging between 100,000 to 917,700 trades.

Since the Sri Lankan market is an international market I do not give much weightage to companies which have traded less than 100,000 which stands at 143 (16 companies traded between 50,000 to 100,000). The day when the ASPI established a new record, 63 companies traded at prices less than those of the previous day.

The high volume of trades in AMW was due to some speculation that some benefit would be extended to its shareholders. SLT rose as a result of posting a net profit of Rs. 5.4 billion, 76% higher than the previous year. LIOC, it was announced would be given an additional 300 odd petrol sheds now under CEYPETCO. Dialog and Tokyo are vibrant under good management gaining the confidence of investors. Out of the 147 companies that traded on this day only 34 companies recorded over 100,000 trades in volume, according to newspaper reports.

One broker reported that “the smallest change in the market could be worth millions” and this is exactly what has happened. Therefore none should get carried away with the idea that the ASPI reaching 3016.42 is a miraculous achievement owing to some extraneous performance by the regulatory bodies. Out of the companies that traded on this day 143 are ailing as much as the regulatory bodies.

At an average around 150-175 companies only trade for a day. The regulatory bodies are complacent and lethargic over this situation. They have no remedies to improve these ailing companies. Recently an analyst said the Sri Lankan market is VIBRANT. I only pity him for his analysis because they have failed to make an indepth study of the market.

Any independent party could now see that there was nothing miraculous or rejoicing needed owing to the ASPI reaching 3016.42. But an analysis shows how pathetic the situation is -- of 237 companies only 34 companies have performed to achieve this record, which is approximately 14% of the listed companies. Both CSE and SEC have exposed their weaknesses to the investors in the recent past having failed to deal with rights and bonus issues of a number of companies effectively. Touchwood Investment Ltd bonus issue is now around 115 days, when they should have completed the same in 21 days.

The wide publicity given (to ASPI records) is a surreptitious attempt by those concerned to cover up their sub standard performances. At present there is wide discontentment and high dissension among the investors towards CSE and the SEC of which they are aware of. If 14% of the listed companies only perform in an appreciable manner the answer to it is not to mislead the public, but to concede in a decent and honorable manner that they have not performed upto expectations. The President in his capacity as the Minister of Finance must consider some action so that small investors are not misled by pronouncements that the stockmarket is vibrant.

(The writer is a council member of Citirights, an organization to safeguard the interests of minority shareholders)