“...never send to know for whom the bell tolls; it tolls for thee” Made famous by Earnest Hemingway’s novel with the same title, Hemingway himself was quoting John Donne from Devotions upon Emergent Occasions. His reference to tolling of bells, as it were the original author’s, was as a harbinger of impending and inevitable death of the protagonist. However, morbid my title – I must admit, my reference to “whom the bell tolls” will be left to the interpretation of the discerning reader. I must admit there are many other types of bells that ring for many reasons. For example, jingle bells that jingle all the way with Santa, which many kids believe results in much yearned-for gifts on Boxing Day at their bedside or for those who can afford it under their very own Christmas tree. Then, there are the types of bells such as the Premier of the country, along with the officials of the SEC and CSE in toe, were ringing at the opening session of the London Stock Exchange just this week. As exciting as it was to see all the president’s men ringing in the market opening in London, different sort of bells have also been ringing in Sri Lanka, mainly in the heads of those with hard-earned capital invested in the Colombo Stock Market. These were ringing pretty loud and clear – not the jingling type that herald a very merry Christmas as previously mentioned, but alarm bells; ringing, so much so, that we don’t hear anything else over this cacophony in 3D surround sound. The plight of the rupee, interest rates, balance of payments, taxes, capital flight, political instability, real imagined bubbles, dollar bonds, fake bonds, one step forward two steps back policies, along with the latest additions – the here today, gone tomorrow policies. Alarming indeed, and as such, it is thus reflected in the stock market, as that’s one sure place that we, the people’s, sentiments are reflected not as a direct indication unlike in an election, but a resultant default of one’s actions to make or save a buck. So how does this happen? A stock market is rightfully described as a barometer of an economy; one cannot thus blame the market when it’s down (or even when it’s up for that matter) as it’s all a real and present reflection of – no, not the economy, but the perception of the economy. The prevailing majority view of the participants’ sentiment of things yet to come. It’s not as they say a lagging indicator, it is very much a leading indicator. It is always one trick ahead. It leads and the economy will surely follow. Not because it’s causal, but purely because it’s predictive; and it’s predictive only because the “market” is a convergence of the many a different opinions and sentiments of the market’s participants, mainly the bulls and the bears who put actual money where their mouth is. When things are looking good, money comes in, and when “things fall apart”, there goes the money. This collective inflow and outflow of capital invested is the basis of a market going up or down. It’s simple as that. Well, not really. It’s not that simple. Though, in Sri Lanka that’s just the way it is. Because we the people are very much hobbled in how we can participate in the economy vis-à-vis the market. We can and should get in if, and only if, and when we believe that in the medium term – in the minimum – that the macro and micro economic conditions are such that the listed companies in the market will see higher and better earnings, and thereby the Earnings per Share (EPS) of those listed entities will indeed reflect this as such and thus the demand for these stocks will go up; thereby moving the share price up and a capital gain or dividend income can be made. Or get the hell out of Dodge (i.e. exit the stock or the market as a whole when dark clouds gather, and consume this capital or invest it elsewhere, such as in debt, real estate, gold, etc.) unlike in other markets such as the London Stock Exchange for example, there really is no other way for us sitting ducks in Sri Lanka – no short selling, no hedging, no futures, no options. Also, as a result of this lacuna in instruments as well as a broad base of participants, the market here can tend to rerate violently; either rising rapidly or crashing down, as it’s an all or nothing zero sum game – either everyone wants in, or everyone wants out. Nothing is priced accurately, as there is no real price discovery, no liquidity, no volume, either most stocks are underpriced or most stocks are overpriced. True price discovery happens only when a large parcel or stake crosses hands. At all other times, the market and stocks will drift aimlessly looking for the next big sociopolitical economic news or worse, news of the next big player’s market intentions for cues. When it comes to the Capital Market (as with many other things, not gifted to us by nature itself), the people of Sri Lanka are stuck driving a beat up Mini Moke when the world is driving Teslas, and we all blame the Government de jure, practically for everything (including the Cricket that we play) because everything depends on the Government as it literally has its hand in everyone’s cookie jars – public or private. Yet as economies are cyclic and inherited, let’s not immediately shoot the pianist for their rendition of Chopin or Elton John. We need to also look deeply inwards at the market participants: the players, the CSE, the brokerages, the investors, the speculators, the regulators, and of course, in true Sri Lankan style, last but not least, the policy makers. To whom the bell tolls? It may indeed “toll for thee”. Is the fault in our stars? So come along with me as I intend to take a deep dive at the workings of the Colombo Stock Market – the barometer of Sri Lanka’s economic outlook. To be continued… Premawardhana is an accomplished professional with over 15 years of comprehensive management experience comprising local and international hands-on experience in the fields of Capital Markets and Risk Management. He holds an MA in Financial Economics from the University of Colombo and a BSc in Computer Science from the University of Southern California USA. He is a former Director of the Securities and Exchange Commission (SEC) of Sri Lanka