Stock market continuously neglected in national policy

The stock market can be identified as the backbone of the economy, as it makes contributions towards the economy in different ways, such as capital formation for companies and profit for investors.

Moreover, as it is the most sensitive institute that reflects the overall economic state in the country, the stock market is highly volatile by nature. Given this nature, the Colombo Stock Exchange (CSE) also has been poorly performing for the past few years. Certain attempts made by the authorities to promote the stock market have become futile, as it is continuously neglected in the national policy.

Importance

The stock market can be important for making the economy stronger in many ways. It creates a platform for companies in need of capital for making their business expansions, for investors interested in growing their money, academics interested in searching for new knowledge and finally for the government to earn their tax revenue.

It is not wrong to say that the stock market is one of the few sources whereby the government can attract a large amount of foreign investment. There are many more reasons as to why the stock market is to be considered economically important.

State of economy

The stock market and state of the economy are just like the two sides of the same coin. Therefore, they are very closely connected to each other. The stock market is so sensitive that it quickly responds to whatever happens in the economy.

As far as the economy is concerned, political instability has been the factor that derailed the economy by keeping the foreign investors away. The constitutional coup, being the climax of political instability, implied the foreign investors that they should withdraw their money from the CSE. Accordingly, it is reported that the net foreign outflow from the CSE was nearly Rs.22 billion last year. Moreover, the trend of foreign funds exiting the stock market doesn’t seem to stop this year as well.

Rupee depreciation was another reason for the situation to go from bad to worse. The Sri Lankan rupee depreciated by over 16 percent last year. When the current regime came into power in January 2015, the rupee stood at 134.03 against the US dollar. However, by today, it has increased up to 178.55 against the US dollar. This indicated very negative signals, as Sri Lanka is a country that has a huge trade deficit.

World economic watchdogs like the International Monetary Fund and World Bank revised their forecast on the economic growth rate in Sri Lanka. Fitch Ratings downgraded Sri Lanka from B+ to B, mainly due to the impact of the political coup last year. Accordingly, these are the major causes for the negative economic outlook that prompted the foreign investors to exit the stock market.

Plight

It is obvious that the CSE has faced this plight, as its both indices have been continuously going down, due to the very low turnover. When the market closed for last week, the All Share Price Index (ASPI) went down by 16.55 points. It came to the limelight when the ASPI crashed down below 6000 points. By this time, it is ready to crash down even below 5600 points.

It is needless to note here that many stockbroking firms have been struggling for their survival for the past few years, under such a circumstance. It can be observed that certain stockbrokers are also gradually exiting the industry, given the lower salaries and lack of career progress that a poorly performed stock market results in.

This can be identified as a very tragic situation, as those who are to promote the market go away. Even though the shares of many blue chips are traded at significantly low prices, the investors hesitate to buy them, due to the lack of clear economic direction.

Budget

Finance Minister Mangala Samaraweera presented the budget for 2019 in Parliament, clearly indicating that he has either intentionally or unintentionally missed the development of the stock market in the country. Even though he could not put into action, in the last budget speech, he proposed Bank of Ceylon and People’s Bank would be listed on the CSE. It was appreciated by many, having considered the plight of the stock market had faced at that time.

We couldn’t observe a single proposal in the 2019 budget to boost the stock market. It was clearly proven on the day following the budget speech, when the ASPI and S&P SL20 went down by 18.97 points and 2.94 points, respectively. This is due to the fact that the budget couldn’t give any clear economic signal for the investor community.

It is true that the stock market was neglected under almost every government in the country. That’s why we have become a stagnant economy achieving slow economic growth in comparison to other countries in the region. The economy has to be a production-oriented one. When the economy is directed to prosperity, no additional effort is needed to boost the stock market.

IT IS TRUE THAT THE STOCK MARKET WAS NEGLECTED UNDER ALMOST EVERY GOVERNMENT IN THE COUNTRY

WE COULDN’T OBSERVE A SINGLE PROPOSAL IN THE 2019 BUDGET TO BOOST THE STOCK MARKET. IT WAS CLEARLY PROVEN ON THE DAY FOLLOWING THE BUDGET SPEECH, WHEN THE ASPI AND S&P SL20 WENT DOWN BY 18.97 POINTS AND 2.94 POINTS, RESPECTIVELY