Whom does the stock market prefer?

Green is the preferred colour of the ones who invest in the bourse. But the market has been in the red ever since the Presidential election was announced on 26 July. Since the declaration of the poll date, the value of the market capitalisation dipped by a staggering Rs. 273 billion until early September. 

The prominent investors of the capital market as well as stock brokers have political preferences. Such inclinations are driven by their beliefs as to which political leader or party’s policies would be most suited to drive the expansion of the market. By nature, Colombo-centric business crowd have an allergy towards the JVP due to their anti-Capitalist past. Have such fears been allayed by its modernised manifestation – the NPP? The viral YouTube video which showed the NPP’s Finance Minister hopeful Sunil Handunnetti equating the stock market to a casino would have further aggravated their fear towards the group which originated from their faith on Marxism. However, the contentious statement was made around 2012 when they were functioning in the political periphery. With the birth of the NPP, the former Marxist politicians have attempted to reach social classes that shunned them for decades.

By bringing individuals in the calibre of Dr. Harshana Suriyapperuma, a former SEC Director, the NPP is trying to validate their acceptability towards the business community who have apprehensions about the political movement which has stood against their interests. Nevertheless, Suriyapperuma’s poor performance during the Economic Policy Debate, which was organised by the Ceylon Chamber of Commerce, did not impress the capital market community and instead, it created doubts about their capacity.

Until the war victory in 2009, the Centre-Right UNP was the boyfriend of the local investor community. Electoral victories of the UNP were greeted with wild enthusiasm and cheer. When the incumbent president was the Premier during 2002 to 2003, the bourse provided attractive returns, and RW became the hero among the stock market enthusiasts. Nothing stays permanent in this world and accordingly the long-held romance of the stock market towards the UNP too disappeared when the LTTE was defeated by the Mahinda Rajapaksa government. 

After the war victory, the market began to worship the Rajapaksas. The revival of the tourism industry and construction-led economic boom provided lucrative returns to local investors. In 2010, the CSE became the best stock exchange in Asia. Meanwhile, the hitherto boyfriend UNP became their bête noire as RW openly criticised brokers and high-net worth investors for pressurising the Government to chase out the former SEC Chairman Thilak Karunaratne in 2012. The fondness of high-profile investors towards Mahinda began to grow further when Karunaratne, who was perceived as too strict and tough, was replaced by the lenient and accommodative Nalaka Godahewa. 

The defeat of Mahinda Rajapaksa in 2015 saddened the investment community as well as brokers. The subsequent infighting between Sirisena and Wickremesinghe disappointed the investors. It is no secret that the market was quite jubilant when Gotabaya won the 2019 election. His disastrous tax cuts that favoured the corporate sector emboldened their hearts although the move paved the way for the economic crisis which followed.

It is obvious the market wants the status quo in terms of economic policies to prevail and finally the investors have realised that macroeconomic stability is critical going forward. It is ironical that the Colombo stock market ended 2021 at its highest level, offering an annual return of 80%. Just four months after the spectacular feat, the island’s foreign reserves declined alarmingly and the entire nation experienced chaos while the bubble burst.

Continuity and stability is critical for the entire country, including the stock market. Lopsided tax cuts and breaks would only give a temporary happiness. Importantly, more than ever, Sri Lanka needs a capable and proven leadership which is committed towards credible macroeconomic policies that would enable sustainable economic growth.