Bourse needs to be cautiously optimistic-report

I nve s t o r s i n t h e Col o mbo Stock Exchange must react cautiously to the rebound that was seen in the latter part of last week, according to a report by Bartleet Religare Stockbrokers (BRS).

“Bullish moves are common in bear markets, and one day’s rally can’t change the larger trend. We need to see continued interest in value counters in the coming week and foreign money coming into the market. Let us be cautiously optimistic and play the long side on the value counters next week and revaluate the situation when the ASPI surges past 6,000,” the report said.

It also drew parallels to the Irish Stock Market of the 1990’s which went through a similar period of turbulence after which a recovery was made through ef fective policy management on the part of the Irish government.

“The reason why the index recovered swiftly was because the Irish gover nment continued t o at t r a c t fo re i g n busi - nesses by reducing cor porate taxes, devalued its currency and therefore FDI continued to flow into Ireland. The dot com phenomena at this time also helped the Irish economy immensely which eventually led to the dot come bubble,” Juriansz said.

The recovery of the market however is reliant on larger trends over the longer period of time, the report noted.

It added that the Colombo bourse’s recovery is largely contingent on policy moves by the government in reaction to positive market sentiment.

“The government needs to let the cur rency depreciate as it is sucking liquidity out of the system as the government keeps selling dollars to keep the peg. This will ease the pressure

on shor t ter m interest rates and will help stimulate industry/ lending. Then the key stake holders need to ensure to set polices in order to attract foreign investment and foreign talent just like Si ng apore di d i n t he 1 9 7 0 ’s … such a pro foreign investment gover nment will see a flood of foreign direct investment coming into the country and consequently set the stage for the next bull move,” the report noted.

The Colombo bourse started off last week with extreme pessimism as all investors resorted to panic selling, driving down the index to one and half year lows.

However the extreme sell-of f e n c o u r a g e d v a l u e p l aye r s t o come into the market and scalp for opportunities. This ignited a huge change in sentiment on Friday with money starting to flow into value counters. Banks such as Commercial Bank PLC (COMB) and Nations Trust Bank PLC (NTB) were amongst top gainers.