From worst performer to Asia’s best – DNH Financial

Monday, 17 September 2012 01:56 - - {{hitsCtrl.values.hits}}

The bourse continued to rally during the week, with the ASPI rising by 7.8% to close at 5927, just below the psychologically important 6000 resistance level on the back of across the board buying by retail investors. The MPI also gained 9.7% to close at 5588 as blue chip counters also experienced heightened buying interest. Even though the bourse is still down 18.0% YTD in dollar terms, in Sri Lanka Rupee terms, the ASPI is now significantly closed to its inflection point on an YTD basis and is the best performing bourse in the Asia over the past one month period up by 20.6% MoM.

We expect the market to test the all important 6000 resistance level next week, and advise investors to be suitably positioned in terms of their portfolio and asset allocations. With market movement expected to be characterised by a series of rallies and pullbacks which will determine the strength of the bourse’s ascent, we continue to advise investors to focus on quality stocks that will outperform in a complete market cycle and advice against seeking speculative positions.

However, even within the quality company segment, we advise investors to be selective by investing in companies that have low debt/equity structures and relatively lower energy consumption needs. In terms of an investment strategy, we advise investors to take advantage of the current rally and restructure their portfolios by selling into strength momentum stocks and buying on weakness quality stocks that are likely to outperform over the medium to longer term. We re-iterate the need to build a highly robust portfolio of alpha stocks strategically positioned to tap the next cycle of 3Q2011 corporate results which we believe is tied to local consumption dynamics. In this respect, we are buyers of counters in the banking, diversified, utility, industrial and healthcare sectors which we expect would benefit fully out of the domestic expansion and generate firm top line growth, sustainable margins and earnings, and ideally positioned to outperform the market.