The week (commencing 13 Monday and ending 17 Friday) experienced a mixed momentum as a bullish run was seen in the early part of the week, which lost grip towards mid-week and picked up on the last day of the week.
Consequently, the bourse registered a Week-on-Week (WoW) gain of 1.5%, whilst recording considerable turnover levels and volumes. The All Share Index (ASI) gained 72.9 points WoW to close at 4,927.1 points (1.5%), whilst the Milanka Price Index (MPI) gained 179.1 points WoW to close at 4,550.0 points (4.1%).
Indices benefited mainly on the back of the gains made by John Keells Holdings (5.7% WoW), Sri Lanka Telecom (5.1% WoW), Commercial Bank (4.3% WoW), Cargills Ceylon (4.0% WoW) and DFCC Bank (3.5% WoW).
The bourse broke the prolonged dreary sentiment to see a slight improvement this week. However, considering the recent past performance of the Colombo bourse, it seems difficult to understand the retail investors’ psychology as they continue to be on the side line albeit the market trading at attractive levels and foreigners remaining as net buyers.
With the intention of boosting investors’ confidence, some efforts such as meeting of top officials and relaxation on brokers’ credit rules were undertaken. However, the market didn’t see any turn around yet. However, this week has somehow shown investors’ active participation along with number of notable block trades, yet it is not certain if investors have actually broken their shells and come out to participate in trading activities or whether they will again remain quiet.
In fact, continuity of a sustainable buying spree is the only signal that may show a clear direction where the market is leading to. Above all, it must be noted that despite local investors remaining silent, foreign investors seem to be optimistic about the Sri Lankan market which was evident by the net foreign inflow of circa Rs 819.2 million during the week.
During the week, institutional and foreign interest was centred primarily on John Keells Holdings and the banking counters. John Keells Holdings witnessed five crossings amounting to over 3.45 million shares changing hands between Rs 190.0- 200. Further, crossings were witnessed on Commercial Bank, DFCC Bank, PCH Holdings and Ascot Holdings. Subsequent to the crossings and active institutional participation, John Keells Holdings topped the week’s turnover list contributing circa 46% to the week’s turnover meanwhile the banking counters, Commercial Bank, Sampath Bank, Commercial Bank (non-voting) and DFCC Bank dominated the rest of the places in the top contributors list adding circa 25% to the week’s turnover.
Furthermore, Panasian Power, Free Lanka Capital Holdings, Dialog Axiata, John Keells Holdings and Swarnamahal Finance topped the list in terms of volume traded during the week. The average daily turnover for the week was Rs 432.26 million whilst the average daily volume for the week was 18.18 million shares.
In addition, during the course of the week, the Colombo Stock Exchange (CSE) made an announcement regarding the introduction of 22.5 million voting shares of George Steuart Finance Limited which will be listed on the Diri Savi board.
The week saw foreign purchases amounting to Rs 1,146.0 million whilst foreign sales amounted to Rs 326.8 million. Market capitalization stood at Rs 1,884.1 billion, and Year to Date (YTD) performance at 18.9%. Conclusion
The bourse is in a position where year to date return has come to a negative circa 18.9% and volumes and turnover levels are barely significant. Retail investors are mostly absent in trading whilst local high net worth investors and institutional investors were holding back from big moves.
The only relief is foreign investors who are positive towards the market with a year to date foreign inflow of approximately Rs 27.2 billion, which is convincing. We observed a sudden unexpected upsurge in the market during the week likely responding to the news over SEC chairman’s intention to resign.
Our concern is, whether it is a valid reason for the market to turn its direction and had it been the reason all this time for the long prevailed down turn in the market. If that is the reason, why are foreign investors accumulating fundamental stocks. Are they reaping the benefits of prevailing attractive valuations, where the trailing market Price Earnings (PE) is at 11.38x and Price to Book Value (PBV) at 1.84x.
The question arises haven’t foreign investors lost confidence over the CSE. Therefore, to top it all, market is attractive with stocks having fundamental backing performing satisfactorily. The Sri Lanka economy is volatile, being affected by the global economic uncertainties, yet the overall outlook is still supportive for businesses. The reason for the absence of retail investors is likely due to their lost liquidity spun over lost portfolio values, with majority of the investors facing margin pressure.
Therefore, towards a solid market recovery we expect new funds to flow not purely from foreign but from the local cash rich high net worth individuals and institutional investors. It is still a big question mark why aforementioned high end local investors are sidelined. Can we put it as a deliberate attempt by a coalition of investors trying to exert pressure on the market, yet the answers to these are barely known. Considering all of the above, we believe that the solution lies with the regulators, who should come up with regulations adhering to global investment standards and be firm in their decisions and to be independent and unbiased. Until such time, a revival in the market would be a question.
Oil prices rose above US$ 116 a barrel on Wednesday to reach a three month high as supply restrictions in Saudi Arabia led to a surge in demand. Oil prices subsequently succumbed to profit taking with the news that the U.S is preparing todrawdown from its strategic reserves to ease the pressure on oil prices. However analysts remain bullish that oil will continue to gradually trend upwards although some downward pressure maybe experienced in the coming weeks. As a result crude oil for October delivery traded on the London ICE futures exchange fell 0.9% to settle at US$ 114.28 a barrel.
Activity on the yellow metal was muted due to mixed signals from the USA and EU with regard to the extent of further stimulus measures by their respective monetary authorities. Analysts expect further monetary stimulus measures in order to jump start the economies to drive the demand for gold which acts as a hedge against inflation. However, data gathered by the World Gold Council indicated a slowdown in global demand for gold in 2QCY12 on the back of slower growth from India and China; the two largest consumers of the yellow metal.
Spot copper traded on the London Metal Exchange (LME) witnessed a marginal dip in price to end the week at US$ 7, 464/ Ton on the back of weaker than expected industrial sector growth in China; the largest consumer of the red metal. However promising data from the US housing market indicated that the number of building permits grantedin July rose to a four year high. Contemporaneously China’s Central bank is expected to take more decisive action to maintain the economy’s growth momentum. Hence traders expect strong gains for copper prices in the coming weeks.
The Euro reached a six week high against a basket of currencies as Germany caved in to pressure by France to support the European Central bank in its efforts to shore up the ailing currency. The greenback too strengthened against the Yen on the positive data in the labour and housing market as well as the better than expected 2QCY12 earnings of major retailers. This has been interpreted by traders as a sign of recovery. In contrast the Australian dollar weakened amidst the expectation that the Central bank may cut policy rates if the relatively strong currency negatively affects export growth.
(Asia Wealth Management Research)