The Director General of the Securities and Exchange Commission says the current crisis faced by capital markets across the world could place Sri Lanka’s stock exchange as a low risk stable destination for foreign investors who bail out from falling exchanges. "Due to its small size the Colombo Stock Exchange (CSE) has performed relatively satisfactorily during the crisis which has seen exchanges in 10 countries in the region record more than 50 percent losses year-to-date as against an 18 percent fall the CSE has experienced," Channa De Silva told the Island Financial Review. De Silva says that the CSE’s relatively better run is attributed to the fact that foreign investments in the exchange are not very significant, resulting in the exchange being less susceptible to losses as a result of mass-scale selling to exit the market. While US exchanges recorded 31 percent losses, exchanges in countries such as China and India who had recorded phenomenal growth last year recorded year-to-date losses of 59 percent and 53 percent respectively. "This is because there is a strong correlation between the US markets and markets in these countries which resulted in bigger losses in response to the downturn in the US capital markets," De Silva says. Exchanges in Russia, Indonesia, Ukraine and Romania had recorded phenomenal growth last year and had to suspend trading last week to prevent market collapse after investors sought to bail out. The CSE’s lackluster performance last year had prevented investors making investments in the exchange riding on the credit bubble of the US and Europe and is thus shielded to a great extent from overselling induced losses. "Investors could now look at the CSE as a low risk, stable exchange to place an investment," De Silva said. Director Research, Lanka Orix Securities (Pvt) Ltd, Vajira Premawardhana, says that the CSE is experiencing a slight downturn because of selling pressure, but it was difficult to gauge at this stage what the full impact of the global financial crisis would have on the CSE. "We do not see a direct impact on the CSE, although a few foreign buyers may want to offload their shares," he said. Premawardhana believes, however, that some local investors were selling off shares in the face of the global crisis to be able to buy more shares when prices are down. "It’s a self fulfilling prophecy really, we see some investors selling shares because of global conditions but with the intension buying back more shares at the depressed prices," he said. He said that the CSE was now attractive place for those who are risk-takers. "They have the nerve to hold on hoping that things will improve and especially that peace will come soon to Sri Lanka," Premawardhana said. |
