These are hard times for the Colombo Stock Exchange (CSE) and the stock broking community. The market has not seen proper inflow of foreign investments for quite some time; the average daily turnover remains at the level of USD seven million; as a result of this poor growth the stock market business and the stock broking community continue to suffer.
The new chairman of the CSE, who took over on May 5, is well aware of the current agony of market players and describes the market as ‘stunted’.
Having being in the stock broking industry for 31 years, beginning his career as a junior executive, Ray Abeywardena is looking forward to taking the challenge of correcting the stock market; bringing the past glory back to the Colombo bourse and prepare the market to embrace ‘emerging market’ status from a frontier market.
Last Monday Abeywardena took time to meet journalists to discuss the current issues of the stock market in Sri Lanka and how he plans to rally round all stakeholders to address them during his three-year tenure.
“This is an industry that has provided everything for me from a vocation perspective and being in the industry I have seen many ups and downs; and unfortunate phases it has gone through.
I feel I have a responsibility to contribute to the growth-which the entire industry is expecting from me as well,” Abeywardena told the Sunday Observer, as we sat down for a one-to-one interview in his private office down Dharmapala Mawatha, Colombo 3.
Although Abeywardena takes up the chairman’s position of the CSE, he will remain as the chairman of Acuity Partners – which is actually his bread and butter.
Garnering support
Abeywardena already served the CSE board when his name was proposed as his predecessor Vajira Kulatilaka stepped down having completed his three year term. “I felt it is time that someone of my caliber to step up and to aggressively work towards putting certain things right in the market given the present issues. But this has to be a concerted effort of the industry, the government and every stakeholder.
“The chairman cannot do this in isolation. I am looking forward to garnering the support of the stakeholders not only to revive but also to put the market back on a more stable and steady platform,” he emphasizes.
What support does he expect from the government? “We have been talking about listing the State Owned Enterprises (SOEs) for a long time.
Now it is time the government implements this project. We badly need that revival to happen and to increase market capitalization.
“Beyond that there are also holistic reasons which should come together to develop the market; you cannot take one approach only and expect the market to grow. But the key point at this juncture is to get the market capitalization up,” he explains.
If the Colombo bourse can improve its capitalization, it will help greatly to be an emerging market.
“The emerging market status put us up in new indices like MSCI. When we get MSCI, we will become a more attractive market and the fund managers will look at us in a serious way. They prefer to invest in an emerging market than a frontier market.
SOE listing
“If you take our market capitalization as a percentage of GDP we are very low - we are only 20 to 23 % where as the other markets contribute 75 to 100%. Some even contribute more than 100%.
“Therefore, we need the government support to make our stock market more focused and attractive with a few strong listings soon.
The government should realize that we are a stunted market and we need the government to give us the impetus to keep going. ” Thereafter, he assured, that the private sector must lead.
The Colombo bourse’s strategy was to increase market capitalization ratio as a percentage of GDP to 50% by 2020.
However, Abeywardena feels the bourse still doesn’t reflect the main sectors, especially export companies, that drive the economic growth of the country such as apparel and tea sectors which bring in valuable foreign exchange.
“It is unfortunate that except for Textured Jersey there are no apparel companies listed on the bourse; there are no other export companies – there are no tea companies other than Tea Services and plantations which were mandatorily listed.
”This is not a good trend, but when you analyze the situation from their point of view, they look at valuation. If they feel the valuations they get are not attractive enough to list the companies they have built with a lot of dedication and hard work, they won’t. We need to create that vibrant market situation,” adds Abeywardena.
“I strongly believe if we are an emerging market, things would be different. For this we now need a ‘doer tank’ from the government; we have had enough ‘think tanks’ – it is time to move on,” he says.
Abeywardena recalled with gratitude how a decision taken by the late President R. Premadasa to withdraw taxes on foreign buying drove the market to its full potential. “This led a lot of foreign companies and fund managers to get active. It was such as good time. We need to see the market to repeat that experience now.” On the day we met Abeywardena, the Cabinet reshuffle had taken place and Abeywardena was hopeful that new Finance Minister Mangala Samaraweera, during whose time the Sri Lanka Telecom listing was successfully done, would be able to take forward the SOE listing project of the current administration.
We expect him to play a dynamic role in putting our financial markets back in the limelight once again. During the last regime, there were no SOE listings. The market dried up, curtailing market growth.”
Broker community
The most affected by the long-running sluggish stock market conditions is the stock broking community. “When the market is not attractive, the investors keep away from the market and the broker community would go through severe issues.” Responding a question on the shrinking broker community, he admitted that it will have a very negative impact on the future financial markets in the country by way of professionalism and growth. In this scenario, he also believes broker consolidation is a good thing if it happens. “It will be the best that can happen to the industry,” he said responding to our question. -