According to reports, CSE’s Chief Executive Surekha Sellahewa has said that liquidity in the market would be increased by broadening the investor base, increasing listed companies, improving market structure and introducing more asset classes to trade.
The Chief Executive was unavailable for comment upon being contacted by the Sunday Leader. However, experts believe that such expansion will largely depend on increasing investor confidence based on beliefs of long term and sustainable growth. The Sunday Leader also learns that the CSE conducts workshops and training sessions to educate potential investors on benefits of investing in stocks.
The Colombo Stock Exchange rose 125% the past year making it one of Asia’s best performers. With success the CSE appears to be recognizing the need for reform an marketing to stimulate further growth.
One of the major barriers the CSE had been facing was high transaction costs of its brokers which acted as a disincentive for investors to trade. Sri Lanka’s transaction costs are among the highest in the region.
Speaking to LBO, CSE chairman Nihal Fonseka said that ”Stockbrokers elsewhere have successfully reduced their dependence on brokerage by providing value added services to investors and our members need to do the same”
Reducing broker fees will stimulate investment but will reduce broker revenue. For brokers to provide value added services they must be able to see good demand for them and a larger and more diversified market can aid in creating this demand. The chairman also suggested the use of technology to increase investment revenue for brokers. The latter has been somewhat of a controversial issue in more complex markets where investment banks with sophisticated computer programs have been accused of ‘cheating’ smaller scale investors who lack the same capability.
Capital markets are a valuable source of investment capital especially for a young and growing economy like Sri Lanka, especially given the lack of other sources for funding other than bank loans. But they are also highly susceptible to speculation and scares brought on by economic shocks. Sri Lanka has seen robust growth in this segment following the end of the war, a lot will also depend on the government’s economic policies and foreign buyers’ confidence levels. Watch this space for more.