By Indika Sakalasooriya
The idea of a possible bubble forming in the Colombo bourse, the world’s second best performing market at the moment, has been cast aside by local market analysts dispelling the claims by several foreign fund mangers, terming them as ‘regret notes’.
The latter part of last week saw the market loosing some of the steam, triggering the fears of a possible bubble as speculated by some.
“Sri Lanka is a long term bull market. It is true that some shares are trading beyond their intrinsic values. But this doesn’t mean that a bubble is forming. Let’s assume that there is a bubble. But I don’t see any material evidence that would lead to burst it, such as a threatening interest rates scenario or at least a wild card situation like the re-emerging of the LTTE,” CT Capital chief executive Channa Amaratunga said.
The latter part of last week saw the market loosing some of the steam, triggering the fears of a possible bubble as speculated by some.
“Sri Lanka is a long term bull market. It is true that some shares are trading beyond their intrinsic values. But this doesn’t mean that a bubble is forming. Let’s assume that there is a bubble. But I don’t see any material evidence that would lead to burst it, such as a threatening interest rates scenario or at least a wild card situation like the re-emerging of the LTTE,” CT Capital chief executive Channa Amaratunga said.
He, however opined that the impact of restrictions on broker credit from January 1, 2010 by the market regulator, entrance of sizable IPOs in the early part of 2011 and continuous rights issues by firms can mop up the liquidity in the market and this may cause a slowing down of the momentum.
“Due to the regulatory restrictions, currently many stockbrokering houses provide ‘unofficial margin’ facilities and extended credit to retail investors to keep the momentum going,” he said.
Also noting that the “future looks bright”, Amaratunga added a cautious note — “this doesn’t mean that we should overlook the budget and trade deficits and finding actual political solutions to the problems that need urgent attention”.
In a recent interview with CNBC, regional economist at Barclays Capital Pakriti Sofat said Sri Lanka’s capital market rally is supported by strong economic fundamentals. Sofat, during her brief interview also said that in the near term Sri Lanka is not facing any risks arising from political or economic fronts.
But she averred that loss making state enterprises should be reformed.
She remarked that country’s fiscal side is improving as the government is making an effort to broaden and streamline the tax base via a Presidential Tax Commission.
She also said that she expected the rating agencies to upgrade Sri Lanka’s sovereign rating to BB- in 2011.
But she averred that loss making state enterprises should be reformed.
She remarked that country’s fiscal side is improving as the government is making an effort to broaden and streamline the tax base via a Presidential Tax Commission.
She also said that she expected the rating agencies to upgrade Sri Lanka’s sovereign rating to BB- in 2011.
Sighting the comments made by some of the foreign fund managers about a possible bubble, Bartleet Mallory Stockbrokers research manager Rakshitha Perera said: “When the time was right these foreigners couldn’t get into the market. They resorted to the idea that the shares were over priced and the market is overheated. At the same time foreigners who held to their shares during the troubled time exited the market making a killing. They also thought they’d be able to get back into the market at low prices. But that is not happening. So now they complain the market is overvalued and a bubble is forming.”
Colombo Stock Exchange has risen by more than 100 percent this year — its main index crossing 7000 points — compared with the second best equity market in Asia, Indonesia, which is only up around about 40 percent.
