The Colombo Stock Exchange (CSE) is revising the index calculation methodology of the All Share Price Index (ASPI) from full market capitalization-weighting to public float-adjusted Market Capitalization, official sources said.
The Index methodology has been published on the CSE web site. The Implementation of the said revision is scheduled to take place on January 24 2022 (with effect from the market closure of January 21 2021).
The All Share Price Index (ASPI) is the broad market index of the CSE, and is designed to measure the movements of the overall market.
The index is calculated in real-time as a market capitalization weighted index, which constitutes all voting and non-voting ordinary shares listed on the CSE.
The ASPI increased 1146 points or 9.37 percent since the beginning of 2022, according to trading on a contract for difference (CFD) that tracks this benchmark index from Sri Lanka.
The Colombo All-Share Index is a major stock market index which tracks the performance of all companies listed on the Colombo Stock Exchange in Sri Lanka. It is a capitalization weighted index. The Colombo All-Share Index has a base value of 100 as of 1985.
All Share Price Index (ASPI) will see less volatility from January 24 as the Colombo Stock Exchange (CSE) is set to introduce a new compilation method to eliminate the influence of illiquid shares which have been the reason for high volatility, a senior CSE official said.
The ASPI, the island nation’s main stock index, has been hitting a record high almost on a daily basis since mid last year mainly due to a few market heavyweight stocks which only had a few shares for public floating.
Stock market analysts said that though the ASPI had given a return of 80.5 percent return last year, some listed firms have given excess returns of 1500 percent mainly because only a few shares created huge demands in the market.
The ASPI posted 80.5 percent return last year to make CSE the best performing market in terms of returns calculated in local currency.
Analysts said companies like LOLC Finance Plc, Commercial Leasing and Finance Company have been on the second board of the CSE due to its lack of free-floating shares since 2019.
However, shares in LOLC Finance gained 455 percent last year while Commercial Leasing and Finance Company skyrocketed nearly 700 percent in 2021.
“The new calculations will capture the real market capitalization of the market as opposed to a current method that calculates the overall shifts in the market.”
Under the existing system, any small movement in market heavyweights, even if the companies have less than 1 percent free-floating, contribute significantly to the change in index both in gains and losses.
The CSE’s staggering returns last year was one of the best positive news for Sri Lanka which was suffering of forex and food shortage crisis.
As of December 31 last year, the CSE had 296 companies listed and some securities including non-voting shares.
Low public holding in equities is otherwise known as illiquid shares. This results in only a small percent of shares being available for public trading.
Analysts say some companies with low public trading moved up mainly due to some speculations without any fundamental reasons while some of the shares are pumped by some people with a vested interest in the market.
Under the new calculation of ASPI which will be calculated from January 24, the CSE expects to create more realistic values and stability in the market.
The new method will weigh the indices based on float-adjusted market capitalisation and not the total market capitalisation.
The difference between the two is that the Float Adjusted Market Cap will move based on the publicly held portion of the total market capital.