SL Market Watch: Nov 4th 2010 - Member Questions & Answers

shehan wickramarachchi

Hello Manoj,

"Central Bank of Sri Lanka (CBSL) is in a policy decision to allow Sri Lankans to open bank accounts abroad and buy shares and debt of foreign companies as part of a loosening of foreign exchange controls, Central Bank Governor Ajith Nivard Cabraal revealed."

with this move taken by CBSL will there be an opportunity for retail investors to enter foreign stock markets?
Can you explain how a local can trade in a foreign stock market?(brokers,currency conversion,taxes etc)

btw your blog is so informative.keep up the good work.
thank you

Answer

Hi Shehan

If Sri Lankans are allowed to open currency accounts, yes definitely you can buy & sell shares. I do not know the system government is going to use to monitor the account activities.

Setting up your account would be the easy part, but understanding foreign markets and foreign companies is going to take some time.

Go to www.wsj.com and www.stockcharts.com regularly and be familiar with markets/stocks. You can register free with them and you can also create a watch list.

Most brokers here are 100% internet based. www.scottrade.com www.etrade.com are quite popular.

Currency conversation is based on daily buying & selling rates. Daily papers publish rates every day.

Basic remains the same. So trade Sri Lanka stocks first and as a diversification you can invest some of it in overseas.

Dr. V. W. Jagath Vasanthathilaka

Dear Manoj

You have made a good analysis of market trends. Why do you think that CSE is slow to recover? Is it due to continuous process of debt collection by the broker firms? We thought this process is over. How can we create positive attitudes towards investment at the CSE? Currently I am in USA; however I am a Sri Lankan resident. How can we minimize the dissemination of negative attitudes towards CSE? Positive financial reports and excellent cooperate earnings should drive the market. How can we make the CSE an attractive place for investment? I think you are doing a great service by encouraging investors.

Thanking you

Answer

Hi Dr Vasanthathilaka

Thank you for your kind words. There can be lots of reasons why market is acting slowly, but if you look at an yearly chart of the market (ASI) you will see Aug to Oct -2010 market went up drastically. After CSE got anxious about it, they curtailed trading capacity of traders. That initiated the reaction. During a normal reaction, a market goes down up to about 5%. But so far Sri Lanka market has gone down about 9%-10%. So its going to take some extra time to get to new high.

Also, government made some recent announcements saying it was going to change tax structure, relax foreign currency restrictions, introduce new business proposal to attract foreign investments. I think these have led to some waiting games. As soon as budget proposals are revealed, stock market should react to the new business conditions.

Good earning reports do not necessarily lead to upside market behavior. Sometimes, experienced traders & investors use good news to sell their big positions. That’s why its important to evaluate the technical side of the market.

I believe Sri Lanka market is a better place invest. If you look at the broad business conditions like employment levels, interest rates, inflation rates, they all show improved levels.

stardust

Manoj, I'm happy to see a blog on technicals its always an advantage to see which way the market is heading. Have been intrested for years in charts.
I have a question though, how are you able to call this a bull market, and what qualifies as bull market? Personaly would have called this unsettled, or volitile at present, moving sideways even, but not bull, just wanted to know if I'm missing something, or are you calling this a bull run within a time frame?
Best always with good intentions

Answer

Hi,

There are different criteria one can use to identify market conditions. One arbitrary rule is, if a market goes down more than 20%, its said to be in a bear market condition.

Other criteria is “economic cycle”. Country’s economy goes through different stages of growth levels. Basically from a boom to recession. When a country goes through a recession, one can see all the so called negative news; job losses, shrinking aggregate demand for products & services, decrease level of credit facilities etc. Obviously we don’t see that in Sri Lanka. On the contrary, economy is in a steady growth phase.

Its very important to understand the different market reaction levels. What we witness now is a short term market reaction. One can use moving averages to get an idea about this. Yahoo graph is an excellent source. Try 20 day or 50 day MA (moving averages). It has not been seriously violated. To see long term changes, use 150 day 200 day MA.

Because of these facts, I call Sri Lanka market is in a bull market condition.

ASI graph with 20, 50, & 200 day moving averages