By Hiran H.Senewiratne
Sri Lanka's macro economic variables are not favorable to the country's stock market development. Current high interest rates and balance of payment issues, for instance, are getting in the way, Colombo Stock Exchange chairman Vajira Kulatilaka said.
"At present the CSE is not performing well owing to world market conditions, interest rate fluctuations and the balance of payment crisis, where exports/imports are concerned. Present market conditions are not conducive to a better performance by the local stock market, Kulatilaka explained to The Island Financial Review.
He said that the appointment of new Central Bank Governor Dr Indrajith Coomaraswamy is an excellent positive move to build local business confidence.
The CSE chairman also said that due to these external reasons foreign investors are exiting the market but it will come to a stable position soon.
"The CSE is at a highly volatile stage because business confidence is not building up fast due to past bad experiences and the manipulation of the market by a few people, Professor of Economics, University of Colombo Dr. Sirimal Abeyratne said.
There are two types of significant entities in the stock market: these are long term investors and speculators. "Speculators are a community which makes a short term profit out of making speculations on the economy while the investors pump in money to the stock market. But the latter have lost faith in the local stock market, Abeyratne said.
He said the investor part is currently the weaker out of the two entities but they are the ones that keep the flow of currency within the stock market as well. Now, with the Fitch ratings aspect coming into play, the investors will decide on withdrawing their interests and companies will also reduce the number of shares that they disperse on the Colombo stock market.
He said that investors in the bond market will have a very hard time in the days to come as they will be directly affected by the gravity of the situation. With the interest rates going up, the demand for bonds will increase.
Abeyratne believes that this will set the tone for a different outcome which will drive investors out of the stock market and ultimately diminish investor confidence.
Providing insight to the upcoming IMF engagements, Dr. Abeyratne said that "the IMF loan will provide a short term solution for a long term problem." Elaborating on his remark he said that the country has been following the same path since the 2009 crisis and that this government too has decided to ‘apply a plaster’ over the bleeding wound.
According to Abeyratne, the IMF loan will keep the country afloat for a period of three-four months, at which point, the country will have to start paying off that as well. Proposing a solution to the matter, he said that the country should have approached the issue with caution and only after implementing proper policy reforms.
Sri Lanka being a small country, any powerful individual or the government itself is able to manipulate the stock market, he said.
"Since the Sri Lankan stock market is the smallest in the region, even smaller than that in Singapore, fluctuations of this magnitude will create immediate repercussions on the economy. Such repercussions will have a huge impact on the stock market, he added.
Sri Lanka's macro economic variables are not favorable to the country's stock market development. Current high interest rates and balance of payment issues, for instance, are getting in the way, Colombo Stock Exchange chairman Vajira Kulatilaka said.
"At present the CSE is not performing well owing to world market conditions, interest rate fluctuations and the balance of payment crisis, where exports/imports are concerned. Present market conditions are not conducive to a better performance by the local stock market, Kulatilaka explained to The Island Financial Review.
He said that the appointment of new Central Bank Governor Dr Indrajith Coomaraswamy is an excellent positive move to build local business confidence.
The CSE chairman also said that due to these external reasons foreign investors are exiting the market but it will come to a stable position soon.
"The CSE is at a highly volatile stage because business confidence is not building up fast due to past bad experiences and the manipulation of the market by a few people, Professor of Economics, University of Colombo Dr. Sirimal Abeyratne said.
There are two types of significant entities in the stock market: these are long term investors and speculators. "Speculators are a community which makes a short term profit out of making speculations on the economy while the investors pump in money to the stock market. But the latter have lost faith in the local stock market, Abeyratne said.
He said the investor part is currently the weaker out of the two entities but they are the ones that keep the flow of currency within the stock market as well. Now, with the Fitch ratings aspect coming into play, the investors will decide on withdrawing their interests and companies will also reduce the number of shares that they disperse on the Colombo stock market.
He said that investors in the bond market will have a very hard time in the days to come as they will be directly affected by the gravity of the situation. With the interest rates going up, the demand for bonds will increase.
Abeyratne believes that this will set the tone for a different outcome which will drive investors out of the stock market and ultimately diminish investor confidence.
Providing insight to the upcoming IMF engagements, Dr. Abeyratne said that "the IMF loan will provide a short term solution for a long term problem." Elaborating on his remark he said that the country has been following the same path since the 2009 crisis and that this government too has decided to ‘apply a plaster’ over the bleeding wound.
According to Abeyratne, the IMF loan will keep the country afloat for a period of three-four months, at which point, the country will have to start paying off that as well. Proposing a solution to the matter, he said that the country should have approached the issue with caution and only after implementing proper policy reforms.
Sri Lanka being a small country, any powerful individual or the government itself is able to manipulate the stock market, he said.
"Since the Sri Lankan stock market is the smallest in the region, even smaller than that in Singapore, fluctuations of this magnitude will create immediate repercussions on the economy. Such repercussions will have a huge impact on the stock market, he added.
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