At least 40% stocks traded at CSE undervalued: Analysts

Most stocks traded are undervalued

By Duruthu Edirimuni Chandrasekera

Most stocks that are traded on the Colombo Stock Exchange (CSE) are undervalued estimated by analysts to at least 40 per cent, experts say.

“When analysing price to book value of certain shares that are trading on the CSE, their book value is higher,” an industry expert noted to the Business Times. “These are the things that investment advisors should educate retail traders on. But this isn’t happening. It’s important to point out the benefits of holding onto a stock for a longer term. Now is the time to do so,” he stressed.

Another expert acknowledged this saying that the biggest issue right now is lack of local institutional investors in the CSE. “It’s partly due to the bond scam which has put these institutions in a fix,” he said explaining that now local superannuation funds are at a bigger dilemma to invest in the CSE owing to this latest turn of events.

In addition to the probes that are ongoing, they’re hesitant to invest due to fear of being hauled in front of commissions and courts should the government change, he added. The Employee Provident Fund (EPF) and Employees’ Trust Fund (ETF) are currently being probed following the bad blood during the pump and dump in the CSE three years ago, and also owing to the recent bond scam.

The CSE has lobbied the Treasury to get the Central Bank to lure both agencies to restart their investments.

The two mandatory and state-managed superannuation funds dominate the pensions industry and about 92 per cent of these funds are invested in government securities. Only 6.5 per cent of the Rs. 3.1 trillion market capitalisation of the CSE is owned by institutional institutions such as EPF, ETF, insurance companies and unit trusts.