Bull-run amidst concerns of credit bubble and manipulation

The Colombo bourse in just four weeks has returned to being among the best performing markets in the world from a worst performer but concerns are being raised over alleged manipulation of junk stocks and an impending credit bubble, analysts say. The AllShare Index (ASI) has risen sharply by 22 per cent or 800 points since August 29 with the entry of Nalaka Godahewa as the new chairman of the Securities and Exchange Commission (SEC). His appointment has been challenged by sections of the industry and the parliamentary opposition on the grounds of established links to powerful businessman Dilith Jayaweera whose has an active stock market investment unit. Since August 22 amidst speculation about Dr Godahewa's appointment (he was appointed on August 28), many penny stocks have risen in price up to now. Amongst these Central Investments and Finance Ltd (up by 97.5%), Hayleys Management Knitting (up by 90.47%), Ceylinco Seylan Developments (up by 77.8%), the Colombo Fort Land & Building (up by 48.57%), Nation Lanka (up by 75%), Malwatte Valley (up by 60%), Panasian Power (up by 24%), Citrus Kalpitiya (up by 22%), Freelanka Capital Holdings ( up by 40.9%) and Watawala Plantations (up by 51.72%) stood prominent. Fundamentals for improved sentiment haven't changed in the market. Concern is also growing over the market returning to casino style trading similar to what happened in 2010. "The interest rate scenario, the exchange rate scenario and the balance of payment deficit are still issues, corporate debt will cost more money and earn- ings will suffer. All this however will mean very little to the retailer and the market manipulator," one analyst said. "Retailers hope to make a quick buck and leave the market before things get ugly and the latter will continue with hopes of never having to face the music for what they do," he said. Asked about the reasons for the significant rise in the market, Deshan Pushparajah, Head of Capital Markets told the Business Times that the market was undervalued for a while and it required a catalyst. With foreign buyers coming in, it got activated.

"So the fundamentals haven't changed, but the market has now adjusted to the fundamentals," he said, adding that what is being witnessed now is not yet a bubble, as the market is still fairly valued and there are shares yet which are undervalued.

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