The Sunday Leader

Stock Market Bubble To Burst

Government administered funds have been driving the market since the beginning of this year asymmetrical with the growth of the economy, therefore it should burst at anytime, market sources who didn’t want to be named told The Sunday Leader.
Yawning budget deficits and high interest rates are not conducive to economic growth, as such the bourse is going too fast, too ahead of the economy, it’s not sustainable, they said.
How be it, state administered funds are investing in banking stock, in fact right across the board, the sources said. They have become aggressive after several years. But the I.M.F. programme is  at a standstill. The confidence generated by the I.M.F. programme may have been the cause for bringing in foreign funds to the government securities market, some U.S.$ two billion in value.
But if the Fund programme collapses, there may be a flight of capital, causing a breakdown to the exchange rate, the sources said.
Foreign investors in government securities may have had done so because the I.M.F. was there with the programme. They may have had thought that this nexus would place the government finances on the right track, but that is not happening, there is no fiscal discipline, they said.
I.M.F. recently suspended disbursing the third tranche of U.S.$ 330 million due to the Government, on account of budgetary over-runs.
I.M.F. representatives told the press recently that they will once again look at the programme after the presentation of Budget 2010, due after next month’s parliamentary elections. Foreigners are staying away from the bourse due to political uncertainty and due to the fact that stocks are over-valued. Other than Janus, a U.S. based fund which invested in John Keells Holdings, there have been hardly any foreign funds investing in the bourse in the past few months, the sources said. Prices are too high.
Investing 6% of g.d.p. on capital projects is good, but is there any worth in investing in the Hambantota harbour without having container terminals or oil refineries for ship bunkering, they asked?
Moneys on infrastructure development have to be spent wisely.

4 Comments for “Stock Market Bubble To Burst”

  1. Asoka P

    Um… oil refineries needed for ship bunkering…did they ask ???

    Stock markets all over the world has peaked around Nov 2009, and bumped along a virual ceiling. The rise of the world stock markets since March 2009 (deep bottom), especially the emerging countries markets (SL being one), is a direct result of international money flow from hoardings in secret havens.

    These havens were threatened with exposure by the G20 summit around the time stock markets hit the bottom. So, what we saw over the last 9 months of 2009 was a gigantic money laundering operation. Once cleaned, and with profits made in the stock markets world wide, that money will flow out again into some other type of investment. Some think that the next move will be into real estate property. So, for investors in SL, keep an eye on the beach front properties in North East.

    SL Stock Market will also move with the world markets – generally expected to trend downwards of course. As always there is some kind of reason offered to explain market movement – be it IMF tranche. I’d rather read tea leaves !!!

    • mike Gunn

      if the retail investors had half a brain they would be able to see on a basic fundamental valuation that the Sri lankan market has overshot its valuation. may it be PEG rations , forward PE’s Free cash flow or any other valuation model applied to the market points, to a serious over valuation. there is a reason that investors like mark mobius , jim rogers have not put money in the market because they can see through the lack of proper governance in asset allocation by the state and the corruption that’s a bain on sociaty.In fact they jave gone on record to say that sri lanka is over valued on Boomberg TV.
      People like calamander are only talking about a 100 million dollars to invest in sri lanka but they still havent got the money and they might not even put it into the market at these levels, with the governmet raising money on sovereign dept they satand to make an easy 10% risk free (other than country risk).
      so reading tea leaves or not people need to look at the market in a fundemntel way and stop chasing pipe dreams and loose there shirt.

  2. raguna

    This appears to be like Tsunami phenomena. Market has risen due to no apparent valid reason. The above factors by the writer as well as subsequent comments are worthwhile. It is time for local investors to be cautious.

  3. ayesh

    “Market has risen due to no apparent valid reason. ”

    Disagree with this. SriLanka is a country with HUGE potential. And with the LTTE is wiped out and no more terror, both Foreign & Local investors are keeping their eyes on our country ! Also as for a small country we do have a lot of natural recourses and vibrant-educated young working force!

    What we lack is GOOD leadership & CLEAR economic policy. Our present dumb leadership & that kabaraya who heads central bank have no clue on this.

    Unless we don’t utilize these opportunities we will end up in total collapse !

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