Colombo Stock Exchange ends year on a positive note | Sunday Observer

Colombo Stock Exchange ends year on a positive note

3 January, 2021

The Sri Lankan stock market ended last year on a positive note, marking a year in which the Colombo Stock Exchange (CSE) indices indicated noteworthy resilience and attracted record-breaking levels of trading activity. 

Market performance 

The benchmark All share Price Index (ASPI) closed the year recording a growth of 10.5%, the highest annual increase the index has seen since 2014 and only the 12th occasion the index has seen a double digit percentage growth in CSE’s 35-year history. The ASPI ended with 6774.22 points. Sri Lanka’s ASPI was also recorded as the best performing stock market index for September 2020, with the index recording  12% growth during the month. 


CSE Chairman Dumith Fernando

The ASPI on May 12, 2020 recorded its lowest point in over a decade but recovered from this to post a 59% gain by the end of the year. Although the S&P SL20 index, which features the CSE’s 20 largest and most liquid stocks, declined by 10.1% in 2020, the index has recovered substantially indicating a trend similar to the ASPI with 57% growth since  May 12, closing at 2638.10 points as of  December 31, 2020.

The overall value of the stock market, which is represented by Market capitalisation, also improved adding Rs. 109 billion during the year and more substantially by Rs. 983 Billion since May 12.

The market recorded a daily average turnover of Rs. 1.9 billion, this daily average turnover is the highest recorded for a year since 2011. The total turnover for the year was Rs. 397 billion which was also the highest since 2011.

Overall market activity in terms of the average number of trades carried out during a trading day also increased significantly, ending double the average figure recorded in 2019 and triple the figure recorded in 2018. This indicates high investor participation.

Local investor interest 

A significant increase in CDS account openings was observed last year with 17,600 new investors entering the market which is 70% higher than the number of new investors in 2019 and 56% higher than 2018. Local investors contributed to approx. 79% of the total market turnover last year which is higher when compared to approx. 63% in 2019 and 55% the year before that.

There was a greater interest among younger investors in the retail segment, with 46% of the total accounts opened being attributed to the 18-30 age group. This marks an interesting development considering the fact that a large portion of retail stock market investors have traditionally been above 50.

Capital outflow trend in terms of foreign investors 

On the foreign investment front, 2020 has recorded a net foreign outflow of Rs. 51 Billion, largely in line with the foreign fund outflow trend recorded in emerging and frontier markets.

However it is noteworthy that Sri Lankan equities attracted purchases worth Rs. 53 Billion during 2020 by foreign investors, ending close to the Rs. 56 billion figure recorded in 2019. The stock market at present continues to indicate attractive valuations relative to other markets in the region. 

Growth 

The Colombo Stock Exchange also introduced a number a progressive growth measures during the year to enhance operational efficiencies and the attractiveness of the Sri Lankan stock market in the perspective of both investors and issuers.

The digitalisation drive of the Sri Lankan stock market has enabled end-to-end connectivity electronically at all stakeholder touchpoints and was implemented as an industry-wide exercise, bringing substantial convenience to investors and operational efficiencies to stakeholders. 

The CSE also expanded the eligibility criteria for initial listing of shares on the Main Board and the Diri Savi Board to enable a wider spectrum of companies to qualify for a listing. Rule revisions, which were also carried out during the year brought about changes to the IPO timelines and the basis of allotting shares which were done to complement Sri Lanka’s rapidly developing commercial landscape comprising multiple business models and segments. The revisions were directed at improving the efficiency of the listing process while offering greater flexibility to companies listing on the CSE. 

2021 

CSE Chairman Dumith Fernando said, “This year,  major market infrastructure developments, product diversification, widening of the investor base, building a sustainable business model and more importantly working with the  Government and the regulator to position the CSE as a pivotal point for capital raising are all on the cards. “Increasing the number of companies listed on the exchange is one of the CSE’s key strategic objectives and we are making steady progress on this front. We look forward to enhancing the listing process and establishing a single window within the CSE for potential listings that would make a Public listing on the Exchange a smooth and efficient process.   

“Similar to the Real Estate investment Trusts framework which was introduced in the final quarter of 2020, we are working on the creation of an OTC market for REPOs on Corporate Debt, trading of Gold-backed products and Stock borrowing and lending. On the Regulatory and Governance fronts, we believe the new SEC Act will be an important development covering regulatory changes required for continuing to safeguard investor rights, enabling the demutualisation of the CSE, facilitating new product development and strengthening the effectiveness of market regulation And of course we see many of the value drivers which have supported strong market performance since May, continuing into the new year,” he said.

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