Wednesday, August 14, 2013

The lack of confidence in the Colombo Stock Exchange is highlighted by what happened yesterday!

The tragedy of the Sri Lankan situation where even financial journalists are either too ignorant, or in fear of their jobs, and are unable to report salient facts to the public, were further highlighted this morning in the Financial Pages of the Newspapers! In short the paucity of interpretation of the facts, rather than merely report facts as they occur.

The Ceylon Tobacco Company (CTC) became the Company with the highest market capitalization in the CSE yesterday. It accounts for 9.41% of the Market Cap of the CSE at the share price of Rs1200. John Keells the long time leader is down to second at 9.34%. A huge morale loss for JKH, at a time it is at a loss to explain to the intelligent investor the logic of the US$850M investment in a resort, when they will not receive the same tax concessions as James Packer’s Gambling Casino Resort.

What is significant is that 84.13% of CTC shares are owned by BAT, and 8.32% is owned by Phillip Morris the two largest Tobacco Giants of the world. (Total of 92.45%) If one logically assumes that the top twenty shareholders rarely sell, then only 3.78% (the balance) are considered liquid in this No1 market value company.

It is a horrible indictment of the CSE to include this stock in their market capitalization at full value as it is meaningless in determining the size of the Sri Lankan Stock Market. Worse still to note that the highest capitalized stock in the CSE has only 3.78% of its shares liquid at best!!

This is just the tip of the Iceburg! Nestle the third highest stock is barely different and so the story goes on. Sri Lanka CSE shares are NOT liquid. A few hundred million rupees can make a huge difference to the market cap by way of manipulation in a market that few shares trade. IT IS SIMPLY NOT SATISFACTORY for the CSE to exist in this present form, as small investors cannot make sound justifiable investment decisions on shares which are so thinly traded, and so closely held.  

In reality when new frontiers are opened and new markets are formed, there are problems such as those mentioned above. However to draw sufficient foreign investors or for that matter local small investors, one has to make a concerted effort in increasing liquidity of the shares. It is a chicken and egg situation here, where until more shares are offered for sale, there is little chance to purchase at fair prices. It is also inevitable that when more shares are on offer the share prices are likely to dip, which the large investor is NOT going to like.

THE CSE MUST TAKE THIS HIT NOW if they wish the market to mature and grow. If they do not there is NO chance of it happening in the near future, and the fooling of the small investor is the result. The CSE is pissing around with various other technical issues of payment for settlements etc. maintaining that it is required for a mature a market, forgetting the basics of investment in a stock market.

In a country such as Sri Lanka where a few individuals (100 at most) have proved to be in cahoots in market manipulation at the expense of the small shareholder, and NOTHING has been done about it by either the CSE or the SEC, it is a bit rich of the goons that run the CSE to think there is any chance of them being able to attract small investors without fooling them. The Road shows therefore in the provinces are further evidence of this deception on the part of the CSE to show the Govt. that they mean business, where in fact they continue to cultivate their cosy club on behalf of a few members and brokers.

There is no small investor lobby, and Unit Trusts that are the alternative for small investors to get in on the long term stock investments, for their future personal portfolio growth, have been simply unable to get the numbers remotely needed to pretend that they mean business, and are able to make a dent against the club.

Just to drive home the incestuous nature of the club, the Chairman of both CTC and JKH is one and the same person. How coincidental is that? It simply is WRONG for this to happen, and to tolerate such nonsense in any country but a banana republic. If we wish to remove ourselves from the Banana Republic status we must grow up, and make basic changes to business practice and rules, and force companies to divest over at least the medium term, of say 5 years. There is NO point talking about more liquidity without doing something positive. I suggest a minimum of 25% with a 3 year term to do so, as they have had enough time in which they did not do a thing in this regard.

Don’t pass the buck and wait for the SEC to impose rules that will become unpalatable. It looks like the SEC waits for the CSE to make the first move and vice versa, without either having the nerve to do so!

CSE Board, get out of your comfort zone if you wish to survive, and have some value for you to retain with demutualization before even that becomes another damp squib!  


Anonymous said...

Nestle and CTC rise contributed disproportionately to the huge rise today, 14th August 2013 setting two new records for both those shares, whilst the Sri Lankan companies perform dismally!!!

Anonymous said...

What is it with our Sri Lankan managed companies, don't they understand shareholder value? Maybe not, they only think of themselves, owners and directors! and their options.

No wonder there is NO place for the small shareholder in the CSE. Time to expose them for what they truly are.

Anonymous said...

i would like to see the manipulation mafia and inside traders that have made billions on the backs of small investors be brought to book. they need to lose all of their ill-gotten gains which are now being invested in legitimate projects such as 5 star beach hotels, fancy condos, houses in london and singapore, etc. and will never be recovered by the ordinary man. those people live like kings now from humble beginnings like marine sailors or bus drivers. the message to the ordinary investor is not to be the fool that invests in value but to be the inside trader which is why the market is doomed to its current fate. there will be no reform as the insiders are riding the bus to riches.