Things visible to foreigners but not to natives

By Amila Muthukutti

There are economically sensitive things the investors are actually interested in, when their investment decisions are made, the big part of which is how the economy performs. However, investor sentiments are manipulated by common as well as specific factors, which make investors either optimistic or pessimistic on the economy.

It is true that opinions on the economy are highly blended with political ideologies, which of course lower the possibilities whereby one can see the real image of the economy. Therefore, separating economics from politics is a must to develop the nation.

A country needs foreign direct investment (FDI) to accelerate economic growth backed by local production. Even though the foreign investments that the other sectors in the country attract are expected to create many employments, pushing the economy forward, foreign inflows into the Colombo Stock Exchange (CSE) will silently make a positive change in the economy.

It is reported that the market could draw Rs.1.6 billion net foreign buying in the first three days of this year. There was a net foreign inflow of Rs.23 billion in the first half of the year 2017 as well, drawing the highest foreign inflow in the stock market history. Here, it is needless to note that foreign inflows always make the market stronger, signalling that the market will get bullish in the near future.

What is most important to be mentioned here is that even if the foreigners keep investing in the stock market, the local investors don’t seem to be that interested in the market – if so, there should be things which are visible to foreigners but not to natives.

Development 
Whatever said or done, there are some major development projects, which will hopefully generate more cash flows in the economy. The Port City, of which the first site for construction is said to be delivered by the end of this year, will attract US $ 13 billion investments in the future. Unlike the other development projects, this is capable enough to transform the entire economy.

Furthermore, the Hambantota port, which was previously a burden on the economy, will pump more money in the future, as it is now operated under an experienced business partner in China.

Regaining GSP Plus, removal of ban on fish exports to the EU and getting higher prices for tea, have resulted in exports increase by 11 percent in 2017 in comparison to the year 2016. It can be expected that exports will further rise with the free trade agreements (FTA) going to be signed with China and India in the future, while the FTA with Singapore signed recently will be an added advantage to the economy.

Stock market
By nature, humans are willing to earn money as quickly as possible, meaning that they don’t like to invest in the long run. Be it an individual or a country, the distance which they can see can decide how far they can move forward. Foreign investors who invest in the CSE do so with long-term expectations, having considered the macroeconomic environment well.

However, the local traders who want to make money instantly will not invest in the market at present, as the current stock market doesn’t cater to quick-money-making purposes.

Every stock at the present market is being traded at discounted prices, making an opportunity for the investors who wish to invest in the long run. That’s why the foreign investors are aggressively buying stocks from blue-chip companies. Another reason to make the local investors away from the market is the high interest rate, which gives them a fixed return with lower risk than that of stock market.

Story 
The local investors who have lost their enthusiasm in the market will invest in the market when the stock market will be at its peak, with stocks being traded at higher prices fluctuating on a daily basis. However, by that time, the foreign investors who buy stocks these days will sell their stocks at higher prices, easily passing the risk on the natives that ultimately incur losses.

This is not the first time this is going to happen in the history. We can recall how the stock market performed very poorly during the days of the war. People were disappointed with the economy and went away from the market.

Nevertheless, soon after the war ended, the market got bullish unprecedentedly. Thereafter, the local investors who started being interested in the market put even their savings at the market and incurred losses. This must not repeat again.

Advice
No one can forecast exactly when it will be bullish. Hence, what is wiser is to invest in blue-chip company stocks in which the foreign investors also invest, rather than running after baseless tips. Be in the buying mode nowadays, so that you can sell them with significant capital gain.

The problem simply raised is that if you buy stocks at higher prices, your buyer has to sell them at even higher prices. Who will buy like that? There will be a very small segment of such irrational investors doing so. Don’t be too late to pick stocks, capitalizing on the current state of affairs.

(Amila Muthukutti is an economist)