Stock market investors won’t return to old businesses

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Businessmen investing in the stock market for the past year are hesitant to return to their original businesses now that they have the taste of easy cash.

The Colombo Stock Exchange (CSE) has been posting unprecedented highs from last year spilling over to this year. After the CSE digitalisation new entrants to the market have found an easier way to get rich. The stock market’s performance is the manifestation of the fragility in the Sri Lankan economy, according to analysts.

Business persons are turning to the CSE as there is lack of investment opportunities, analysts say noting that now that these traders have found their groove in the CSE, they do not plan to return to their original businesses. These traders cannot be found fault with because as businessmen they need to create wealth.

The CSE data show 40,000 active central depository systems accounts with 28,000 daily transactions by retailers. The stock market recorded their fourth straight session of all-time highs on Wednesday already gaining 7 per cent for the first six days of this year.

Despite certain analysts predicting the party may be over by the first quarter of this year it doesn’t seem to be so.

Some senior stockbrokers alleged that there is massive insider trading in the market as certain numbers and corporate results of listed firms are revealed to market participants before the CSE announces them.

Twitter groups promoting certain shares are also on high gear. The power of social media channels such as Twitter and WhatsApp are at high play with new and old investors flocking to certain groups and individuals following their assessments and between the lines recommendations to buy and sell shares.

The same buyers and sellers are trading the top trading shares repeatedly, a market analyst pointed out. During the last 10 months the free float has traded over 10 times in certain stocks, he said. “It’s almost like a pyramid scheme.”

As an example, in Browns investment PLC the free float is at 2 million shares with an issued share capital of 14 million. Over the past few months 20 billion shares have been traded in this stock which shows that trading has happened within the same circles and in different price levels. “This is not wrong but overall, one should exercise caution as it is almost like a pyramid scheme and may become a vicious cycle,” one source said.

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