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Sun, 26 October 2014 03:56:14
Sri Lanka's small stock market seen easy to manipulate
13 Sep, 2011 12:03:02
Sept 13, 2011 (LBO) - Sri Lanka's stock market is still so small a small group of investors with deep pockets can manipulate prices, a former stock broker and present head of a ceramic tile group has said.
"Our market is too small. A small group of people with a lot of money can move the market," declared Mahendra Jayasekera, managing director of Lanka Walltiles group. "That's why they don’t need to speak to brokers or research analysts."

Jayasekera, himself a stock broker in the mid-1990s, said the Colombo Stock Exchange had not grown since then to keep pace with the growth of the economy.

He spoke as a member of the panel at the 8th LBR LBO CFO FORUM which had as its theme 'CSE: A Blood Bath or a Gold Mine', held recently at Ceylon Continental Hotel.

The forum debated the phenomenal rise of the CSE after the end of the island's 30-year ethnic war in 2009.

The stock market boom made it one of the world's best-performing bourses but also prompted regulators to impose price bands and curb trading on borrowed money after extraordinary price volatility.

Analysts said cheap money also helped fire the stock market bubble with interest rates now generally below the effective inflation rate which has fallen off record highs three years ago.

"Our stock market is still very small and lacks the breadth and depth needed for a market to sustain itself," Jayasekera said. "If you have a critical size, then a few people won't be able to create waves."

Jayasekera said the number of companies listed on the CSE had not grown enough, as a result of which, a growing number of stock brokers were chasing almost the same number of firms. The number of investors had also increased.

"If you really see the situation between 1994 and now, our gross domestic product at current market prices has increased many fold and there's no denying the fact the country's economic potential has been unlocked (after the war)."

But he said the number of listed firms had increased to only around 265 today from 225 in 1994.

In 1997, when Jayasekera left the stock broking industry, he said there were about 14 - 15 stock brokers. Today the CSE has 29 members and trading members.

"The conclusion is that we all ride on the same companies," Jayasekera said.

The number of research analysts had also doubled during this period to about 100, he said, noting that this meant there was adequate research about listed companies.

"I think the market is fairly well researched and if the market is fairly well researched there is no way prices can move up and down the way it has been described - it is unbelievable," Jayasekera.

"Then we need to find out why the number of listed firms has not increased in tandem with economic growth."

Jayasekera said it may be because it was not really "worthwhile" for companies to obtain a listing in the CSE.

"If so there would have been many more companies that would have gone to the stock market to raise money," he said.

"My experience in running listed companies is that it is not worth listing a company unless you have that critical size - unless you want to flog your company; you can take it to the market and flog it and go home."

More transparency was also needed about investments by the funds investing in the CSE, Jayasekera said.

"There are 10-15 big funds operating in the country and we need to identify what contribution these funds have made to the growth of the stock market, and, if you take the effect of those funds out where would the stock market be," he said.

"Also, you know most of these funds are not accountable. The investing public have a right to know what these funds that are not accountable are buying and selling because they make a huge contribution to the waves that are being created in the stock market.

"My experience is, whether an investor is big or small, the best way to make money is to get hold of funds that are not accountable."
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READER COMMENT(S)
9. Keen Investor Sep 14
1. Yes I agree everything in Sri Lanka is manipulated. What corrective measures have we taken? Its important atleast few of us specially the leading personalities do our part of the job to change towards the right path.

2. Yes, depth and the breath of CSE needs to be improved. With low market cap IPOs, still we are giving chance for more stocks for manipulation, will not act as a deterrent for manipulation. What has the investment bankers done about it? What has the broker community done to rectify? And I guess we should facilitate foreign companies to be listed in the CSE and work towards it - Walk the Talk.

3. Well its not worth speaking about the regulators. Are they supporting the breadth and depth to improve?? Doubt it. They change policies every month, fire the investment managing companies and not walk the talk. In which country have we seen investments increasing when policies change? If the regulator is so changing will FDIs improve, will high networth investors come to SL or can the depth and breadth of the CSE increase? It scares all types of investors rather than protecting them... But to avoid any extreme conditions we do need the regulator to intervene but with stable set of policies and framework.

4. About over pricing and crappy IPO, introductions etc. Well there are talks of rating agencies coming into the scene, but has anything happened on it? More the delay, more its gonna hit on the FDIs. And Investment Banks do need to choose there IPOs and be firm on their critical evaluation of the forecasts that drive the valuations.

5. Investing wisely is the investors responsibility.... But if they run behind a casino market that is their responsibility. Yet, building the suitable environment for it is the responsibility of the regulator, stock brokering firms and even the investment bankers.

6. Governance, transparency and ethics are some of the stuff many of fund raising companies have forgotten.... What are the watch dogs doing about it?

8. meerkat21 Sep 14
Everything else is manipulated- so why not the CSE?
Not only politicians, almost everyone cheats in SL.
Politicians are not aliens. They are part of society. The oft repeated axiom " Standard of politicians reflect the standard of society" is true to this day. It's due to low self esteem and greed. ( Desire-ethics= greed). And a lack of scientific education.
7. jsk Sep 13
Well if these comments of corruption/manupilations exist,why dont the companies listed who are not doing well or not looked at by the brokers / investors pull out of the cse and seek directions from the courts????
6. Andare Sep 13
And guys remember SEC is a "watchdog" not a "Bloodhound". So, investing wisely is the investor's responsibility.

Let the big players manipulate the market, its the responsibility of the rest of the investors not to be 'manipulated'. Do your home work. Make wise decisions.

5. Love Sri Lanka Sep 13
@Miracle of Asia, you are right, but the world is “Cheating” for me, not “Corruption”.
But you are spot-on when you said” When the rulers of the country are corrupted the whole society follows it....” eg. CBK was penalized 1mio or so. Paw ane…..

That’s why “they” call it Miracle of Asia.

Related to the topic, anybody knows what was not disclosed by ERI. ERI was penalized 10mio or so. Paw ane… Who’s money is in ERI and where are those invested?

@Andare, SEC is not going the job, which is the issue here. (“small stock market seen easy to manipulate” is not a excuse). Other issue is when the boat is sinking “they” have small boats to flee. At least they are building small boats (and also “small” ports).

Saddest part is, if again someone tells that they will give bread for 3.50/= they will come to power.

4. Analyst Sep 13
Everyone is talking about manipulation on the CSE, and it appears to be fairly widespread, but the SEC does not seem to be doing anything proactive to stop it. Price bands and tinkering with rules will not deter any alleged manipulators. Only strong punitive action will make white collar criminals think twice.

It is high time that the SEC stopped talking and acted in its watchdog role. For starters, it should thoroughly investigate trading in shares that have displayed remarkable volatility in the recent past without any fundamental backing.

3. Miracle of Asia Sep 13
It's sad that 'Corruption' is in private institution like CSE or broker firms...

When the rulers of the country are corrupted the whole society follows it....

2. Andare Sep 13
I have noticed that along with the false Human Rights allegations towards Sri Lanka, that our stock market is also being hammered by various parties. What you people do not realize is that you are standing in the very boat you are trying to sink!

Why don't we let the SEC do its job. If SEC operates properly CSE would operate properly. If our market has few players who could manipulate it, then the only solution is to bring more and more big players, so there is enough competition, and less room for manipulation. But if all these parties start criticizing the CSE, that will never happen. Stop criticizing and start acting towards a better CSE!

1. Rajive de Silva Sep 13
Mahendra is spot on. The market is neither deep nor broad enough to ensure that the effect of manipulation is eliminated. Funds without accountability are managed by fund managers with dubious credibility and brokers can get them to do anything by paying kick backs. Though kick backs by brokers are illegal almost all brokers do pay them as unless otherwise they cannot get business from these unaccountable funds. Unfortunately most of these unaccountable funds belong to the people of the country. This is the tragedy of the break down in law and order and emergence of corruption.