By Granville Perera –
Many thought that the regime change would be the harbinger of prosperity – a thriving economy, a buoyant stock market and a flood of foreign investment. Two months into the “utopia” of change, the reality is far from that envisaged.
The stock market, prior to the election stood at a modest but stable 7300 points. All sentiments were that a bull run would soon ensue with the market witnessing an unprecedented gain. This clearly never materialized, and a closer analysis sheds some light into this disappointment.
Firstly, what countless investors failed to appreciate was that the market was in fact overvalued. Although a market PE of 19 of all the companies comprising the market were, all in all, hyped. The speculative investments that fuelled such an inflated valuation have now simply run out. Thus, it came as no surprise that the market did not rally as anticipated.
Secondly, another formidable shackle on the market is the budget proposals put forward by the current regime, which have done little to muster up business and investor confidence. More importantly, the move to collect 50 billion from the top most companies in the market has irked many investors and analysts. This policy has, no doubt, boomeranged and the stocks of these companies are in the doldrums. The market, disappointingly, stands at 7000 points today – a far cry from the much foretold “Bull Run”.
Overall, it is no exaggeration to say that the policies presently in force have reduced a staggering 200 billion in terms of market capitalization – all this in an ill-thought attempt to muster 50 billion in revenue! Such proposals clearly contribute to forestalling the resurgence of our once thriving market.
Finally, it is an often heard saying today, in the brokering and investor community that the market regulator is currently on a path of vindictive reprisal, in an effort to drive home “a lesson” to all market participants. Such rhetoric by the regulator instils unwarranted fear which keeps all investors away.
Thus there is no speculation in the current market. It is trite knowledge that a degree of speculation is necessary for a healthy market. Speculation is not manipulation. This distinction must be made clear. Speculators, simply look for opportunities where significant price movements are likely.
All speculators have now resigned themselves from the market in trepidation of the regulator. Yes, market malpractices must be clamped down upon and those responsible penalized, but instilling a fear psychosis is counterproductive. Regulation of the market on mere gut sense, sans professionalism and experience, may do as much damage to the market as market malpractices.
The way forward is for the government and the regulator to follow a non-interventionist policy and allow the market forces to find its own equilibrium. Let the forces of demand and supply interplay to bring about stability and the gradual revival of the market. Laissez faire should be the key word at play.
The much-publicized rhetoric of bringing the manipulators of the stock market is a forgotten slogan. The 20 most wanted men are continuing to have a field day, and no one has even attempted to question them. This again is yet another Yahapalanaya pledge that has been dishonoured. Is this an attempt by the authorities to allow the manipulators to continue their manipulations and destroy the market as well as the naïve small investors? Failure of the Sirisena-Wickremesinghe administration to act decisively will ensure that the expected Bull Run would only be a pipe dream.
The call for the resignation or temporary withdrawal of the Governor of the Central Bank Governor, Arjuna Mahendran to ensure a free and fair inquiry in to the investigations of the controversial Treasury bond issue, where his Son in Law has played an important role is justifiable by any yardstick of Yahapalanaya. The long-standing relationship between Charlie Mahendran, Arjuna’s father and Ranil Wickremeinghe, our Yahapalanaya Prime Minister would be put to the biggest test with the decision of the President to appoint his committee to investigate this scandal. It is rumoured that 3 billion has come out of a state bank for this transaction. Who could have access to this kind of financing from a state bank without political or other patronage? Its testing time for Yahapalanaya and it is important that any wrongdoing is investigated and nipped in the bud, immediately.