Foreign outflows from stock exchange not leaving the country, says official

• Foreigners expected to become net buyers before year end as opportunities increase,

• but foreigners are selling out their shares and making profits with some market analysts believing the market is ‘overheated’.

February 24, 2011, 8:29 pm

Securities and Exchange Commission (SEC) Director General Malik Cader and SEC Chairperson Ms. Indrani Sugathadasa at the press conference announcing the latest directives. Pic by Jude Denzil Pathiraja

A top official of the capital market watchdog said foreign investors are exiting the stock market because they were making profits by selling long-held shares, but these funds were not leaving the country and are being invested in other areas of the post-conflict economy.

Securities and Exchange Commission (SEC) Director General Malik Cader told journalists yesterday (24) that foreign investors were net sellers in the Colombo Stock Exchange as they were realising profits by selling their shares.

Last year, foreign investors were net sellers amounting to Rs. 26 billion (about US$ 236 million and this year up to February 23, foreign investors had been net sellers amounting to Rs. 6.7 billion (about US$ 60 million).

"We have discussed this with the Central Bank and they said these net foreign sales did not mean funds were leaving the country but are being invested in other areas of the economy. So these correspond only to an outflow from the capital market but not the country," Cader said.

"Foreigners exiting the stock exchange maybe investing in government securities," he said.

Sri Lanka’s Colombo Stock Exchange soon became one of the best performing exchanges in the world after the thirty-year conflict ended in May 2009.

By the week ending February 18, 2011, the CSE had grown 104.46 percent from a year ago. Average daily turnover grew by 279 percent Rs. 4.5 billion from Rs. 1.18 billion a year earlier while market capitalisation more than doubled, growing 111.3 percent to Rs. 2,533.7 billion from Rs. 1,199 billion a year ago.

Despite these impressive figures, the exchange is seeing foreign investors exit.

"This is because they are making profits and we hope to attract them back to the capital market by the end of the year, making them net buyers in the exchange. We feel they will have plenty of opportunities going forward," Cader said.

He said it was possible to monitor the movement of funds and determine whether they were leaving the country because foreign investors had to route their capital market investments through special bank accounts, called SIA (Share Investment Account).

Some market analysts told The Island Financial Review that the tremendous growth experienced by the exchange was due to hyped-up speculation and was not based on solid market fundamentals with companies showing strong performances.

"The market maybe overheated," an analyst said.



source - www.island.lk