The Colombo Stock market has seen sharp growth fuelled by the participation of local retail and foreign investors at present. Purchases by foreign investors has seen an encouraging upward growth, Head of Research, Candor Equities Limited, Pasindu Perera said.
“The market has seen a sharp growth of nearly 550 points over the past 30 days backed by local retail and foreign investors’ participation. Purchases by local investors jumped up 89% while purchases by foreign investors saw an exponential growth of nearly 476%.
Foreign investor contribution to the total market turnover has seen a substantial growth from 17% to 38% over the past one month. Market Capitalisation increased by 10% during the past 30 days. Market Price to Earnings ratio stood at 9.4%, still attractive compared to regional peers,” he said.
Investor sentiment is in a positive momentum amidst the possible nomination of a presidential candidate of a leading party next week coupled with lowering interest rates in the broader economy.
Market interest rate has seen a substantial drop during the past two months (AWPLR dropped nearly 135bps). The US rate cut by 25bps in early August was also aided to accelerate the market sentiment while expecting an increase in foreign participation in emerging and frontier markets including Sri Lanka.
The momentum is likely to continue under the relatively low interest rates situation of the economy, Perera said. Nominating Presidential candidates of leading political parties, Federal Open Market Committee Meeting (FOMC) meeting next month, and monetary policy stance of the Central Bank are the turn of events in the short run that will impact the behaviour of the stock market.
When asked whether the market activities will bounce back to its previous positive performance level, he replied in negative. “I don’t think the market will ever go into a territory that was seen soon after the war. However, investors could enjoy decent returns from the latest developments with a more sustainable approach,” he said.
One of the key measures needed to attract more investors in to the stock market is financial literacy. It is the most important area to focus on since this lags behind in Sri Lanka compared to regional countries. If people are aware of the process of building wealth through long term capital market products such as the stock market, more people with the appropriate mentality and psychology would participate. Then investors won’t panic when there is short-term volatility in the market and end up with losses, Perera said.
Asset Trust Management (Pvt) Ltd in a statement noted, “Having risen by 10.5% during July 2019, the All Share Price Index continued to gather momentum during this month with increased domestic participation underpinning market momentum. With the corporate results season in full swing, it has been a mixed bag of results so far, but a number of companies have surprised on the upside.”
“With positive market sentiment expected to largely continue, we expect the bourse to re-approach the psychologically important 6000 resistance level, which is, however, likely to be characterised by a series of mini-rallies and pullbacks. With current market valuations being highly attractive from a regional perspective, we expect foreign participation to improve as well, which is likely to provide further impetus,” it said.