Colombo stock market breaks all records; investors urged to trade with caution

Share prices at the Colombo Stock Exchange have soared in recent times, a performance welcomed by the Securities and Exchange Commission of Sri Lanka (SEC) which also issued a cautionary note on prohibited conduct leading to market offences and SEC efforts to help investors avoid these pitfalls.

“While there are many records broken, we would urge investors to trade with caution,” an SEC source said. In the 2011- 13 period, several investors burnt their fingers when rogue traders played the market in pump- anddump trading, artificially raising prices of some shares and then unloading them in the market.

In a statement issued on Saturday, a day after the Colombo Stock Exchange (CSE) broke many records in trades, the SEC said that steps have been taken to enlighten the investors on prohibited conduct in order to ensure that they stay away from areas that would amount to market offences.

On Friday, the CSE saw 61,722 trades the highest number of trades ever in a single day with the All Share Price Index (ASPI) gaining 291.34 points the highest ever points gained in the history of ASPI.

The CSE also saw its highest ever market capitalization of Rs. 3.2 trillion with the turnover for the day being a staggering Rs. 12.4 billion.

The average daily turnover of the CSE during the first two weeks of this month is averaging Rs. 7.4 billion compared to Rs. 1.8 billion during 2020. It is a huge leap from the daily average turnover of Rs. 710 million recorded during 2019.

“This phenomenal performance of the CSE indicates the strong confidence the investors have on the market. It is heartening to note that local investors have stepped in at a time when there has been a foreign outflow and their contribution amounted to 80 per cent of the total market turnover in 2020,” the statement said.

It attributed several contributory factors to this unprecedented performance of the stock market; main amongst them the slashing of bank interest rates by the Central Bank last year. The stock market has become the preferred choice of a large number of investors due to this prevailing low interest regime. Political stability coupled with progressive steps taken by the government to develop the capital market too has had its positive effects. The creation of a State Ministry for Capital markets in August last year as well as the salutary proposals introduced by the November Budget aimed at providing relief to the stakeholders of the capital market are noteworthy signals sent out by the government to demonstrate its commitment, the SEC said.

Among contributory measures that has sent the market spinning to record levels is the digitalization of the end to end operations of the CSE; opening of new accounts through an online facility; the use of social media in garnering interest in the stock market; the SEC through social media platforms educating investors on different aspects of investing and the need to make an informed investment decision while staying away from prohibitive conduct leading to market offences; and plans to encourage more listings of companies particularly start-ups.

“In order to ensure the integrity of the market and to protect the large number of investors in the face of the surge in the daily number of transactions, the regulatory and supervisory framework of the SEC have been strengthened by enhancing the capability and capacity of the Supervision and Surveillance Divisions,” the statement said.