Asiasec’s take

Sunday, 3 October 2010 23:40 - - {{hitsCtrl.values.hits}}

Here is the Asia Securities take on the market’s boom last week and prospects for the coming weeks.

The ASI surpassed 7,000 mark elevating itself to be the world’s top performing stock exchange posting +110% YTD gain. Further investors were seen placing much emphasis on blue-chip counters.

However certain unjustifiable market gains continue to challenge the sustainability of the market and Sri Lanka’s attractiveness as a frontier market. However the gambler mentality and the herd instinct of investors would continue to drive up the market with occasional profit taking.

Against this backdrop the possibility and the need of a tangible correction remains our concern, thus we advice our investors to take profits and increase cash allocations whilst taking positions in fundamentally strong counters with sustainable growth potential and healthy ROEs, since a number of counters in the market still hold great potential. The Colombo bourse currently trades at a 4 quarter trailing PE of 27.8X. Along with our key buys our main stay recommendations remain; Diversified Hemas Holdings and Chemical Industries Colombo and despite the recent gains in hotel sector we still see upside on Aitken Spence Hotel Holdings and Keells Hotels. Whilst we maintain our recommendations on the Banking sector stocks such as Sampath Bank and Nations Trust Bank. Due to expected increase in disposable income resulting a boost in consumption the Food and Beverage sector stocks such as Lion Breweries, Bairaha and Distilleries remain attractive. Manufacturing stocks such as Lanka Wall Tiles and Tokyo cement are also amongst our favourites. However we are in the process of revisiting our models and recommendations we maintain our buy stand on.