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Tuesday June 18th, 2024

Sri Lanka savers warned on stock scams as interest rates fall

ECONOMYNEXT – A rise in Sri Lanka’s stocks which has sent some counters to soaring to unusual highs may leave late entrants in losses, opposition legislator Eran Wickramaratne has warned as money printing pushed rates down and drove stock and bond prices up.

Bond prices rose much earlier than stocks.

Wickramaratne, a former banker and state minister for finance, warned that people tend to invest in risky money men who offer higher rates and shadow financial institutions when interest rates fall, instead of stable banks.

When inflation rises and real interest turns negative, savers may also turn to questionable schemes.

Though they offer high yields, in the end investors lost their capital as well as interest, he said.

“So I will talk about CSE in the same manner,” Wickremeratne, a former banker, said. “Invest with knowledge, don’t lose the investment by investing without knowledge.”

In Sri Lanka periods of high inflation had also led to so-called ponzi-style scheme operated such as the one run by Danduwam Mudalali, a rural money lender who offered high returns by repaying old investors with deposits from new ones.

In 2019 inflation was 4.2 percent measured by the Colombo Consumer Price Index. Sri Lanka’s central bank has an inflation target of 4-6 percent and a floor policy rate of 4.5 percent at the moment.

But printed money has driven up excess liquidity to about 20 percent of reserve money supply and foreign reserves are being lost whenever the excess liquidity turns into credit.

Through various social media accounts people are encouraged to invest in CSE.

“Don’t go to invest by hearing only what they say, we need to look at the messenger also,” Wickremeratne said.

“We don’t have a problem If someone who has the knowledge is investing but it is dangerous to invest without having a proper knowledge,” he said.

“So we should look at it very carefully, it is not a gamble, it’s not like investing with a money lender in order to get more money, you can lose the invested money.

Analysts say the stocks to lookout in particular are low value stocks penny-stocks (microcaps) or illiquid ones (those with a smaller free float), which can be driven up easily.

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In Sri Lanka there have been cases of large cap stocks with weak revenues or cashflows being pushed up, which then show high profits by re-valuing assets, some of which are held abroad under opaque arrangements.

The stocks eventually fall, which a top analyst referred to as ‘re-discovering gravity’, leaving late entrants in losses.

However some stocks may actually have value but its prices may not be reflected due to overall bad sentiment or fears about the future.

Sri Lanka’s Securities and Exchange Commission had also warned about questionable online tips and hyping of stocks.

Related

Sri Lanka SEC welcomes stock surge, calls for informed decision-making

Wickremeratne said that In the years 2011 and 2012 retailers were the ones who had to bear the biggest losses from ‘pump and dump’ scams where certain players pushed up prices of firms with weak fundamentals and then exited.

Some of the big businessmen and fraudsters purchased shares for very low prices and sold at higher prices through the Employees Provident Fund, he said.

“So when those purchase are made at higher prices, the prices in the stock market later dropsit will cause a loss to the EPF,” he said.

“So if there is retailer he will also have to bear that loss.”

He said a similar thing is happening in 2020, where about 10,000 new retailers have joined the stock market.

During the stock market bubble, fired by low interest rates, which broke in 2011 and 2012, many shares were dumped on state-managed funds.

The Employees Provident Fund came to be known in markets as the ‘buyer of last resort’ as it bought stocks at prices other investors in the market were not buying.(Colombo/Jan20/2020)

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Sri Lanka’s Ceylon Chamber links up with Gujarat Chamber

ECONOMYNEXT – The Ceylon Chamber of Commerce has signed an agreement with the Southern Gujarat Chamber of Commerce and Industry (SGCCI) to increase trade cooperation between India and Sri Lanka.

The MOU was signed by CCC CEO Buwanekabahu Perera, SGCCI President Ramesh Vaghasia, in the presence of Dr Valsan Vethody, Consul General for Sri Lanka in Mumbai, India.

“With the signing of the MoU, … the Ceylon Chamber of Commerce and SGCCI aim to facilitate trade between the two countries via initiatives such as trade fairs and delegations, business networking events, training programmes,” the Ceylon Chamber said in a statement.

“This partnership will open doors for Sri Lankan businesses to explore opportunities in Surat’s dynamic market and enable the sharing of expertise and resources between the two regions.”

Established in 1940, SGCCI engages with over 12,000 members and indirect ties with more than 2,00,000 members via 150 associations. It promotes trade, commerce, and industry in South Gujarat.

The region’s commercial and economic centre Surat has risen to prominence as the global epicenter for diamond cutting and as India’s textile hub, and is ranked the world’s 4th fastest growing city with a GDP growth rate of 11.5%

Surat’s economic landscape is vibrant and diverse. As India’s 8th largest and Gujarat’s 2nd largest city, it boasts the highest average annual household income in the country.

The nearby Hazira Industrial Area hosts major corporations like Reliance, ESSAR, SHELL, and L&T. (Colombo/Jun18/2024)

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Sri Lanka telecommunications bill some clauses ruled unconstitutional by SC: Speaker

ECONOMYNEXT – Sri Lanka’s Supreme Court has found a number of clauses in a proposed amendment to the Telecom Telecommunications Amendment bill unconstitutional, speaker Mahinda Yapa Abeywardana said.

“Clause No 8, proposed section 9A 2 of the bill is inconsistent with Article 12 1 of the constitution, however this inconsistency shall cease if word ‘may’ will be replaced with word ‘shall’ as set out in the determination of the supreme court.”

“Clause No 9 is inconsistent with Article 12 1 of the constitution and only can be passed with special majority required under paragraph 2 of the Article 84. However, the inconsistency shall cease if clause is amended as set out in the determination of the supreme court.

Clause No 12, proposed section 17 10 of the bill is inconsistent with Article 12 1 of the constitution and can only be passed with special parliament majority required under Article 84 paragraph 2. However, the inconsistency shall cease if clause is amended as set out in the determination of the supreme court.”

Sections of clauses 13, 18, 20, 33 and 35 were also in violation of the constitution, and could only be passed by a special majority of parliament. (Colombo/Jun18/2024)

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Sri Lanka to exempt one house from imputed rent wealth tax: President

ECONOMYNEXT – Sri Lanka will exempt one house from a proposed wealth tax outlined in an International Monetary Fund program, President Ranil Wickremesinghe said.

About 90 percent of the people’s houses are likely to be exempt from the proposed tax, he said.

“[O]ne house will be exempt from this,” President Wickremesinghe told parliament Monday.

“It is going to have a very high threshold and I do not think the vast majority of the people in this country should even be worried about their house

“Don’t worry your house will be safe.”

The IMF program document however did not mention an exempt on one house, but did mention a threshold.

Taxing houses and thrift in general could have detrimental effects on people’s well-being housing stock and their willingness to remain in the country without migrating, critics say.

Related Sri Lanka to tax imaginary rents on houses under IMF deal

The mechanism of imputed rents was used because rates on houses was assigned to provincial councils and courts could strike it down.

Opposition legislator Harsha de Silva said the Samagi Jana Balwegaya welcomed President Wickremesinghe’s statement. (Colombo/June18/2024)

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