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Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 2584

Dullish market due to political crossover

By Quintus Perera – Asian Tribune

Colombo, 05 February, ( The HNB Stockbrokers in their weekly review indicated that the share market remained dull for most part of this week, as investors grappled with the news of the Muslim Congress and a faction of the UNP joining the government. While on the positive side the new coalition between the parties seemed to strengthen the government, uncertainties arose due to the immense size of the new cabinet, which was expanded in order to accommodate the opposition members who extended support to the government.

They indicated that nevertheless indices managed to bounce back on Friday, picking up lost ground to end the week, on a positive note. Week on Week (WoW) the All Share Price Index (ASPI) rose by 9.9 points closing at 2947.5 points on Friday, while the Milanka Price Index (MPI) rose by a similar 8.6 points to close at 4097.3 points. This week the number of trading days were limited to 4 days, as the Poya holiday fell on Thursday.

Seemingly unyielding interest on the JKH counter propelled it yet again to become the highest contributor towards weekly turnover this week. Approximately 3.9 million of JKH shares traded this week with the counter contributing Rs.799.6 million towards the week’s turnover. While in volume terms this week, a reduction was witnessed in the number of shares traded compared to last week, the counter was the second highest traded stock for this week. JKH share price fell slightly by 0.6 percent during this week, to close at Rs.204 per share while trading between a range of Rs.206 and Rs.200.25 per share.

Renewed interest was seen on Ceylinco Insurance shares this week, with Friday alone witnessing 629,100 shares trade. The counter contributed Rs.130.5 million towards weekly turnover, while it’s share price moved higher this week by 3.4 percent closing at Rs.205 per share on Friday. Ceylinco shares hit a high of Rs.209 per share while trading at a low of Rs.190 per share for this week, with a total of 648,000 shares trading. The counter was the second highest contributor towards weekly turnover, recording less than 1/5th the turnover posted by JKH, which seem to emphasize the significance of the JKH contribution towards total market activity this week.

Tokyo Cement was yet another counter which saw added interest this week, with the share price of the counter picking up by 6.1 percent WoW. The counter touched a high of Rs.230 per share this week, however closing the week slightly down at Rs.229.75 per share. Contribution from the counter towards total weekly turnover amounted to Rs.128.5 million amid 590,800 shares trading for this week.

Interest on Commercial Bank shares, which was sparked last week on a merger announcement, was seen continuing through this week. However, adding to the interest in Commercial bank shares this week was an announcement of a rights and bonus issue for both its voting and non-voting shares. According to the announcement made on Wednesday,voting and non-voting shareholders would be entitled to a 3 for 10 rights at Rs.138 per share and Rs.65 per share respectively.

Further to which both categories of shareholders would receive a bonus issue of 1 for every 3 shares. A total of 0.8 million of Commercial bank voting and non-voting counters traded this week, with the majority of 0.6 million shares being non-voting counters. Non voting shares were also showing a higher increase in share price moving up by 9.7 percent compared to the voting share which showed a 4 percent increase WoW.

Both counters managed to contribute a total of Rs.146.2 million towards weekly turnover. Market turnover for the week amounted to Rs.2.3 billion, while average daily turnover this week amounted to Rs.467.9 million. With the number of trading day’s being cut short this week due to the Poya holiday, a straightforward comparison cannot be carried out between the activity recorded this week and last week. Thus taking into account the average daily turnover levels a significant 59 percent decline can be observed this week, compared to what was witnessed last week.

Foreign investors seemed inclined towards selling this week, as investors became net sellers amounting to Rs.273.1 million. Foreign purchases amounted to Rs.779.7 million while foreign sales toped the Rs.1 billion mark to stand at Rs.1.05 billion this week. Foreign
participation as a percentage of total activity stood at 39.2 percent moving higher compared to the past couple of weeks where participation levels averaged around 20 percent.

Nawaloka, JKH, RCL, Sierra cables and Dialog were among the most heavily traded stocks this week, in terms of volume.

Meanwhile in their point of view the HNB Stockbrokers indicated that the market remained positive during the week with activity levels maintaining at healthy levels. The highlight of the week was the high foreign participation, which increased to 39 percent for the week. During the week market gained by 9.9 points to close at 2937.6 points compared to previous week’s closing level.

Government strengthened amid crossovers

With the recent crossovers the Government has managed to gain majority control in the parliament with 54 percent of the lawmakers agreeing to support the government. UNP the main opposition party earlier warned the government not to entertain the crossover of a breakaway faction of the UNP and thereby jeopardize the MoU signed between the two parties last year.

However, with the crossovers taking place during the last weekend, it is still to be seen whether the UNP will continue to support the government to arrive at a permanent solution for the north and east conflict as agreed by said MoU. Despite controlling the majority, the government still does not command a 2/3 majority in parliament. Therefore any amendment to the constitution will still require the support from either the UNP or the leftist party, JVP.

Stock market gets more attractive amid sky high inflation

According to Colombo Consumer’s Price Index (CCPI) the Point-to Point inflation hit a decade high in January 2007 reaching 20.5 percent compared to 19.3 percent in December 2006. Meanwhile the annual average inflation, which stood at 13.7 percent in December, reached 14.8 percent in January.

The rise in inflation can be mainly attributed to increase in food items that have a 62 percent weighting in the market basket of CCPI. In their opinion inflation is unlikely to take a breather in the short tem, with annual average inflation likely to touch 15.8 percent in February 2007. At the moment with inflation standing at 14.8 percent and 12-month Treasury bill rate on the Independence Day parade

standing at 13.58 percent, the economy is continuing to experience negative real returns, which could attract more funds to the stock market in order to derive higher returns.

Activity levels to sustain

The market is likely to remain positive during the coming week even though investors would be eying at profit taking opportunities at regular intervals. Furthermore, the HNB Stockbrokers do not expect a major drop in turnover levels, as investors would continue to be in the lookout for trading opportunities in the market. Thus they advise investors to focus more on trading opportunities while trying to collect fundamentally sound undervalued counters.

- Asian Tribune -

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