Ballots drive bulls in Sri Lanka stock market

by Amal Jayasinghe
COLOMBO, Nov. 30 (AFP)
— Sri Lanka’s stock exchange plunged to a 10-year-low after Tamil rebels bombed the island’s international airport. But three months later the market is rising like a phoenix.

The bulls are driven not by any miraculous improvement in the island’s tottering economy, which looks set to record its worst performance since independence from Britain in 1948.

Analysts say the dramatic turn around came after the Marxist-backed government collapsed leading to parliamentary elections next week.

Banking on a more investor-friendly opposition United National Party (UNP) coming to power, investors have been picking up stocks for less than the price of a cigarette.

The all share price index has risen 33 percent while the blue-chip weighted Milanka index soared 46 percent since parliament was sacked and fresh elections called on October 10.

"We are probably the best gainer in the world after the September 11 attacks in the US at a time when global markets are crashing," said Elton Ebert, a stock analyst with Ceylinco Stock Brokers.

Sri Lanka’s bourse plummeted to its lowest since 1991 after Tamil Tiger guerrillas devastated the only international airport on July 24 dealing a severe blow to the tourism and exports.

But gloom was replaced by boom, at least in the stock exchange, with the news that Sri Lanka was headed for another election in just 14 months.

Six weeks after the airport attack, President Chandrika Kumaratunga accepted a lifeline thrown by the Marxist JVP, or People’s Liberation Front, when the opposition tried to topple her shaky coalition government.

With a flood of defections from her own party, Kumaratunga was forced to sack the assembly rather than allow the opposition to oust her one-year-old government.

That is when the stock market began to take off.

There is hardly any foreign money in the Colombo market where the annual turnover is equivalent to a few minutes’ trading in New York, but locals are snapping up bargains and making small fortunes.

One of the blue chips, John Keells Holdings, doubled its share price to 55 rupees (60 US cents) in just two weeks since the calling of fresh elections.

But chairman Vivendra Lintotawela reported a 45 percent drop in net profit in the second quarter of this year compared to the corresponding period last year.

"It appears unlikely that the GDP growth rate would show any improvement," Lintotawela said referring to the worse than expected 0.4 percent gross domestic product (GDP) growth in the second quarter of this year.

"Even to maintain a zero growth rate this year would be an achievement," said opposition leader Ranil Wickremesinghe who has made the economy his main campaign plank for the December 5 election.

Since independence, Sri Lanka has maintained a positive growth rate with the lowest recorded in 1971 when GDP growth fell to 0.2 percent.

Thousands of jobs have been lost as a direct result of the rebel attack that destroyed four parked passenger jet liners and damaged two more in July. The air force also lost eight aircraft.

Despite gloomy forecasts by analysts and business leaders, Kumaratunga said earlier this month that there was actually greater prosperity measured by the eating and travelling habits of Sri Lankans.

She said chicken consumption rose from 20,000 tonnes a year in 1994 to 80,000 tonnes last year. But the figures are disputed by poultry farmers and the Central Bank.

Kumaratunga has said there were more taxis now, but again the numbers are disputed by the registrar of motor vehicles.

With nearly seven percent of GDP spent on financing the war against Tamil rebels and the effects of a drought, not many see a light at the end of the tunnel even after the vote.