The Colombo Stock Exchange (CSE) suffered a net foreign outflow of over Rs. 3.5 billion in less than eight hours of trading over the past week, although there was keen domestic buying interest from bargain hunters looking to snap up fundamentally sound stocks that were on offer at 10-year low prices.
Foreigners sold just over Rs. 5 billion worth of stocks while they purchased nearly Rs. 1.6 billion, following a seven-week closure of the CSE, which analysts believe had led to a loss of confidence among these investors and some disappointment that they were deprived of the opportunity to pull out their investments when they originally wanted to.
This foreign outflow was more than seven times that of the panic-driven week in mid March, when the CSE suffered a net foreign outflow of Rs. 473 million in the five-and-a-half days the market was open amidst the local outbreak of Covid-19, before the seven-week closure which began on 20 March.
Furthermore, this Rs. 3.5 billion was reached effectively in under eight hours of trading time, as opening day lasted just 38 seconds and the second day saw one circuit breaker triggered, which halted the market for 30 minutes. Trading time the last week was from 11 a.m. to 1 p.m daily.
This surge in foreign outflows over the past week has brought the net outflow for the year to Rs. 8.7 billion, at a time when the Government has placed strict import restrictions and other measures to avert a foreign exchange crisis due to the drying up of tourism and worker remittance receipts due to the Covid-19 pandemic.
Commercial Bank accounted for a bulk of the outflows with stocks just worth over Rs. 3 billion being sold by foreigners, and the highest net inflow was seen in Ceylon Tobacco Company at Rs. 72 million.
However, the past week was a week to savour for domestic investors who were on the lookout for bargains, with shares of the leading listed banks and premier blue chip John Keells Holdings PLC (JKH) closing trading below the Rs. 100 mark on 12 May, for the first time since 2009.
This rare sight was mainly possible due to JKH falling to Rs. 94.10 and Sampath Bank, which was the highest valued banking stock last Monday (11) at exactly Rs. 100, closing at Rs. 99.90 on Tuesday (12), bringing all banking stocks down to double-digit prices.
According to seasoned market watchers, the last occasion all these stocks fell below the Rs. 100 mark was back in 2008 when the All Share Price Index (ASPI) crashed 41% following the Seylan Bank and Sakvithi scandals and the 2007/2008 global financial crisis. They hovered around those prices till around the time the war ended.
The ASPI and S&P both closed the week in the green, with the ASPI up 1.04% and the S&P up 2.84%. The daily average turnover was a healthy LKR 1.9 billion for the week.
However, both indices ended the week down from the previous week, which included just a half a day of trading due to government imposed holidays and the sudden imposition of curfew, with the ASPI down 2.90% WoW at 4,439.04 points and the S&P down 9.85% WoW at 1,755.51 points.
Meanwhile, the SEC defended the new circuit breaker system which debuted this week against criticism and mixed reviews from certain quarters.
“The introduction of circuit breakers with the cooling off periods has given the opportunity for the market participants to think, reassess and reevaluate their investment decisions and has mitigated panic selling setting into the market. Amidst the pandemic, it is commendable to note that the local equity market has remained so far resilient,” a senior SEC official told The Sunday Morning Business yesterday (16) on condition of anonymity.
The SEC introduced the new system on 30 April, under which the market automatically closes for the day if the S&P SL20 index, which includes the 20 largest companies listed on the CSE, drops by 10% or more. Under the old system, trading was halted every time the S&P dropped 5%, with the market closing for the day if it dropped 5% at or after 2 p.m. The new system removed this 2 p.m. mark, allowing the market to be closed as early as 11.30 am if the S&P drops 10% or more.
The new system came in for heavy criticism after the CSE saw its shortest trading day in history on Monday (11) when the market had to be halted, and then closed, after the S&P dropped 9.6% in 38 seconds, triggering the new circuit breaker on its debut. Analysts pointed out that the possibility of an early market closure may have precipitated the panic selling and that the closing point should be when the S&P drops further than 10% as 10% was not sufficient.
It was also alleged that this new system had been imposed arbitrarily by the SEC upon its licensee, the CSE, without due consultation. This allegation was vehemently denied by the SEC official.