Low deposit interest rates drive retailers

The Colombo Stock Exchange (CSE) is seeing a flock of retail and High Networth Individuals ( HNWI) - essentially due to low deposit interest rates, analysts said.

"This trend can be sustained with the low interest rate regime," a stockbroker said.

But some analysts are not so sure. "There is a revolving trading pattern right now – the same shareholders are buying and selling the same shares. This cannot continue after a particular point. With significant profit in encashment, this trend will reverse," an analyst pointed out. He agreed the retailers are coming into the market due to the low deposit interest rates but noted that this is not sustainable. “The stock market should think of ways to attract long-term, strategic investors locally and overseas. The market will attract strategic, long- term local and foreign investors based on fundamentals. What we see now are non-strategic, short-term investors.”

Another analyst noted that many emerging markets barring India and China are also facing the same challenges of foreign outflows and heavy retail participation as seen in the CSE.

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Dilshan Wirasekara, CEO First Capital Holdings PLC, pointed out that the CSE is getting genuine cash buying interest and not so much credit. In 2011, when the CSE was overheated, there was as much as Rs. 10 billion credit. Now it stands at Rs. 3 billion. Mr. Wirasekera added that based on certain policies by former US President Donald Trump, there was a lot of foreigners leaving emerging markets. "Now with the new administration, things will change. We may see foreigners returning next year."