Following the recent downtrends, the All Share Price Index (ASPI) of the Colombo Stock Exchange (CSE) dropped 34% to 8,135 points from 12,226 points as of the end of 2021. The S&P SL20 dipped 38% to 2.623 points from 4,233 points. Market capitalization plummeted a staggering Rs. 2 trillion, ending at Rs. 3.5 trillion from Rs. 5.5 trillion.
Investors relying on margin trading were hit the hardest, as Rs. 2 trillion of value was wiped off the market. They are currently seeking relief in the form of temporary easing of ‘forced selling’ laws.
The plunge was caused by the country’s prevailing economic and political turmoil. Central Bank’s decision to hike policy rates by 7% sent a further jolt for listed equity investors.
Capital market stakeholders decided to keep the CSE closed on Monday and Tuesday, thereby the entire holidays-filled week, even before the Central Bank move was announced. According to analysts, had the market been opened today, a further dip would have been witnessed due to the CBSL move, despite improving macroeconomic stability in the medium term.
Investing communities called upon the Securities and Exchange Commission as well as the CSE to consider and lobby for relief from rules governing ‘forced selling,’ a mechanism aimed at minimizing risk on the part of banks and finance companies who are margin providers, when the outstanding amount goes to above 70%.
The consensus among investing community is non-enforcement of force selling for six months out of empathy and to bring stability first and give confidence to the market since the recent plunge is viewed as an aberration and future fundamentals.
Brokers and investors are also hoping that the SEC will be successful in lobbying for a debt moratorium from the Central Bank.
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