The Telegraph
Since 1st March, 1999
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Strongest market takes a knock

Colombo, Nov. 5 (Reuters): Sri Lankan stocks dived 13 per cent in their biggest ever fall today after the President suspended parliament, throwing doubts on a peace process with Tamil rebels that had sown the seeds for an economic boom.

Tourism and investment officials said the clash between President Chandrika Kumaratunga and Prime Minister Ranil Wickremesinghe would hit the island’s economy by spreading uncertainty over a 20-month ceasefire with the Tamil Tigers.

The stock market had been among the world’s strongest this year before Kumaratunga’s action yesterday, which included the sacking of three ministers. Wickremesinghe said the moves were aimed at undermining a peace process with the Tigers.

“If the uncertainty prevails the market will have to re-rate downwards,” said Sheyantha Abeykoon, an investment analyst at Eagle NDB Fund Management, which owns close to two billion rupees ($20.9 million) in stocks. “It will hit profits, especially in tourism, this quarter.”

Optimism over the economy, which the central bank had forecast would grow as much as six per cent this year and 6.5 per cent in 2004, had driven the market up 70 per cent in 2003 till Monday. But a five per cent fall yesterday and today’s tumble cut its gain for the year to 42.47 per cent.

The key Colombo all-share index closed down 12.98 per cent, or 173.25 points, at 1,161.29, in trade worth one billion rupees. It was the lowest close since September 17. Sri Lanka Telecom Ltd, the largest stock, slumped 23 per cent to 19.25 rupees.

Today’s fall wiped 39 billion rupees off the value of the market. The rupee fell 40 cents to 95.60 per dollar, but the bond market saw little trade. After the markets closed, the President declared a state of emergency.

“It’s panic mode,” said Naren Godamunne, a broker said. But Central Bank governor Amarananda Jayawardene said there was no reason for panic. “Economic fundamentals have not changed,” he said, playing down the impact of tourism on the economy.

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