The outcome of the recently announced national survey by the Colombo Stock Exchange (CSE) to identify why there exists a problem of low retail participation in Sri Lanka’s capital market is expected to be known in six months, CSE Chairman, Ray Abeywardena said last week. The CSE has invited prospective service providers to submit a proposal, quotations and technical specifications for the conduct of a national survey of the adult population with disposable income.
“The low participation rate of domestic investors in the capital market has been a perennial problem for years. The survey is still at its preliminary stage but we want to evaluate the understanding of the public on share investments, identify the problem, address any issues and attract long term investors into the market,” Abeywardena said.
The CSE Chairman pointed out that despite Sri Lanka being a country with a population of 21 million, active participation in the stock market stands at a dismal low at an estimated 25,000 although there are more than 500,000 Central Depository Accounts.
“Over the past six months in particular, although the market and its turnover has been on the rise, this has been mainly due to foreign dominated participation. On the contrary, the majority of local investors have either been selling or not investing at all,” a stock market analyst told The Sunday Observer.
On the other hand, the analyst noted that if you contrast this situation with neighbouring India, the Unit Trust businesses have been very successful in mobilizing funds from retail investors to invest in the stock market in addition to individuals dealing directly in the bourse.
“In Sri Lanka, although the Unit Trusts have been in operation for over 25 years, they are yet to be seen as a viable investment avenue for the average person who generally tends to opt for a Fixed Deposit Account to hold their savings.”
“Giving it to a Fund Management Company to invest in shares doesn’t come to the mind of a lot of people. Whether this is due to a poor performance of the fund manager, poor knowledge or awareness are factors the CSE needs to look at,” the analyst who who wished to remain anonymous pointed out.
The CSE has said the findings of the survey has to be segregated based on different Socio Economic Classes (SEC) and has left the opportunity with the contractor of deriving the target population based on acceptable sampling frame.
CSE’s core stakeholder base constitutes of 34 members and trading members, 296 issuers, 750,000 investors, over 150 employees, and other stakeholders.
Their current investor base has a 25%: 75% mix of foreign to domestic investment in the equities market.
The CSE is the nucleus of Sri Lanka’s capital market as the licensed operator of the stock market.
The CSE is regulated by the Securities and Exchange Commission of
Sri Lanka and was incorporated as a company limited by guarantee over 30 years ago.