By Samantha Nayakarathna
Ceylon FT: The country's equity market continues to grapple with the lack of confidence and trust as retail investors stay away despite the prevailing low interest rate regime.
With the low interest rate regime continuing to remain, people are reluctant to invest in capital market products, which give a high return compared to other investment tools. Ceylon FT spoke to veteran capital market specialist Ravi Abeysuriya to get his views on this.
"The fundamental issue which is lack of confidence and trust still remains. That is why people are not benefiting from these capital market products. People are not yet confident to come in a big way. If you ask from an average person, he still believes in fixed deposits. That is the big issue in Sri Lanka," Abeysuriya, who is the CEO of the Candor Group of Companies, said.
"Everybody invested in fixed deposits because historically interest rates have been high. But today, it has drastically come down. Interest rates have come down by 40%, It is going to stay like this and it is not going to quickly turn around like during the war. During the war period interest rates were going up and down."
Abeysuriya said the low interest rate will continue and the capital market will be the only investment tool which will gives a high return on investment.
"If the macro-economic management is reasonably sound, where there are funds flows coming, where there is less demand on credit, pressure on interest rate is not going to be high, and there is no pressure actually. Interest rate is a supply and demand issue. So when there is less demand, interest rate will come down. And continue to be like that, as far as CBSL is concerned, inflation is only four per cent; that means deposits will not pay huge real return over and above inflation."
"If inflation is four per cent, deposits will pay six to eight per cent. So you will get low interest rate, and what is the choice people have? The choice is the capital market, and capital market products are varied, and a good example is unit trust. Our Candor growth fund has given 20% return. People have no confidence in unit trusts; unit trusts have no issue what so ever with stock market manipulation. Unit trusts are managed by professionals and they know what they are doing."
Abeysuriya was of the view that average people still believe traditional investment models.
"So what are our people investing on; smarter people are investing in land that is very good. Sri Lankan land price will continue to increase. But what is the problem with land? It is not easy to liquid. What is the investment of the poorest of the poor? What is the investment they use? Gold. But they don't have trust in the capital market. Capital market serves the same purpose.
"Only 9,000 people are investing in the stock market, only 9,000 CDS accounts are active out of some 700,000 CDS accounts. This is the damage. When the interest rates are low, when you get hardly any return you spend. You don't invest for the future.
"This is a long-term industry; if you do damage, you do permanent damage. That is what we are facing today. You did damage in 2009 and 2010 by getting too greedy, and you damage confidence. If I give you the wrong advice and you lose money will you have any confidence? That is what has happened now, and damage control has to happen."
www.ceylontoday.lk
Ceylon FT: The country's equity market continues to grapple with the lack of confidence and trust as retail investors stay away despite the prevailing low interest rate regime.
With the low interest rate regime continuing to remain, people are reluctant to invest in capital market products, which give a high return compared to other investment tools. Ceylon FT spoke to veteran capital market specialist Ravi Abeysuriya to get his views on this.
"The fundamental issue which is lack of confidence and trust still remains. That is why people are not benefiting from these capital market products. People are not yet confident to come in a big way. If you ask from an average person, he still believes in fixed deposits. That is the big issue in Sri Lanka," Abeysuriya, who is the CEO of the Candor Group of Companies, said.
"Everybody invested in fixed deposits because historically interest rates have been high. But today, it has drastically come down. Interest rates have come down by 40%, It is going to stay like this and it is not going to quickly turn around like during the war. During the war period interest rates were going up and down."
Abeysuriya said the low interest rate will continue and the capital market will be the only investment tool which will gives a high return on investment.
"If the macro-economic management is reasonably sound, where there are funds flows coming, where there is less demand on credit, pressure on interest rate is not going to be high, and there is no pressure actually. Interest rate is a supply and demand issue. So when there is less demand, interest rate will come down. And continue to be like that, as far as CBSL is concerned, inflation is only four per cent; that means deposits will not pay huge real return over and above inflation."
"If inflation is four per cent, deposits will pay six to eight per cent. So you will get low interest rate, and what is the choice people have? The choice is the capital market, and capital market products are varied, and a good example is unit trust. Our Candor growth fund has given 20% return. People have no confidence in unit trusts; unit trusts have no issue what so ever with stock market manipulation. Unit trusts are managed by professionals and they know what they are doing."
Abeysuriya was of the view that average people still believe traditional investment models.
"So what are our people investing on; smarter people are investing in land that is very good. Sri Lankan land price will continue to increase. But what is the problem with land? It is not easy to liquid. What is the investment of the poorest of the poor? What is the investment they use? Gold. But they don't have trust in the capital market. Capital market serves the same purpose.
"Only 9,000 people are investing in the stock market, only 9,000 CDS accounts are active out of some 700,000 CDS accounts. This is the damage. When the interest rates are low, when you get hardly any return you spend. You don't invest for the future.
"This is a long-term industry; if you do damage, you do permanent damage. That is what we are facing today. You did damage in 2009 and 2010 by getting too greedy, and you damage confidence. If I give you the wrong advice and you lose money will you have any confidence? That is what has happened now, and damage control has to happen."
www.ceylontoday.lk
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