Fernando was speaking on January 11 at the Annual Asia Securities Annual Investor Conference. Fernando spoke of how the stock exchange had seen a meteoric rise year on year. He noted that there were many contributing factors to the increasing valuations of listed entities.
Chief among the increased valuations is the low-interest-rate environment enacted by the Central Bank to stimulate the economy. Fernando highlighted that in a negative real interest rate scenario the investor community was hard-pressed to lock their capital in with the banking sector. He further noted that there was scope for these negative yields to change in the coming periods.
The low-interest-rate environment coupled with the Central Bank keeping the money markets flush has helped boost turnover in the stock exchange. The Central Bank through measures like the reduction in statutory reserve requirements for the banking sector has released large amounts of lendable funds over short-term time horizons. The stock exchange has been a major beneficiary of this move with average turnover for the recent period exceeding Rs. 4 billion.
Fernando also highlighted that over the recent period there have been many successful initiatives to bring new investors into the market. With the advent of digital onboarding and other digitisation measures of the CSE, there has been an increased uptake by the general public.
In relation to the rise in the value of the index, Fernando opined those valuations compared to regional peers still remained relatively weak. He also noted that the move to bring in the interest rate environment to reflect inflation was a slow process.
Fernando highlighted the need for strong financial models and an understanding of the market for investors to benefit from equity investment. Fernando highlighted that the CSE was still riding high from a record-breaking year and was looking to carry that momentum forward into the next year.
Fernando noted that though there was a lot of uncertainty given the COVID-19 pandemic in recent times there has been relative certainty on future outcomes. He said, “You may not like the way things are headed but at least things are more clear.”
Fernando highlighted the record corporate earnings in the Q3 (for most corporates) of major listed entities in the market.
He added that this trend was expected to continue. Fernando added that the global, as well as the local economy, was now on the firm path to recovery.