Positive macroeconomic developments fuel market rally

Monday, 19 May 2014 00:00 - - {{hitsCtrl.values.hits}}

By Asia Securities Research The Colombo Stock Exchange continued its positive momentum from the previous week and ended firmly in green territory. The ASI soared 30.3 points WoW to close at 6,315.2 points (+0.5%), whilst the S&P SL20 Index gained 21.9 points WoW to close at 3,479.2 points (+0.6%). Indices benefited mainly on the back of gains made by Asian Hotels & Properties (+7.9% WoW), Bukit Darah (+3.1% WoW), John Keells Hotels (+7.7% WoW), Commercial Bank (+1.2% WoW) and The Good Hope (+10.4% WoW). The average daily market turnover continued to stand above the 12-month average during the week with involvement from both local and foreign investors and stood at Rs. 1,079.3 m. The improvement in UN-ESCAP country indebtedness parameters coupled with the impressive export performance of the country during the first quarter of the year will further improve the foreign as well as domestic investor confidence on prospects of the economy. The growth in export earnings during the first quarter of the year by circa 16%YoY had far reaching positive outcomes which permeated throughout most of the key macroeconomic fundamentals. On one hand it assisted the exchange rate to remain strong despite the higher costs of fuel imports for electricity generation which accounts for over 10% of total annual imports expenditure of the economy. Further, the higher export receipts against tepid rate of credit growth increased the liquidity levels of the financial system and hence assisted the drop in domestic interest rates, increasing the valuations of companies with positive marginal capital efficiency. It further improved the country’s indebtedness parameters that may assist the government as well as private institutions to raise funds at attractive rates from global capital markets. Under this backdrop, the outlook on the economy and hence that of the trading activity of the Colombo Stock Exchange further improved from the positivity which gathered following the ending of the UNHRC sessions on Sri Lanka. This in turn assists the momentum in trading activity to carry forward. Meanwhile, John Keells Holdings emerged as the top traded counter during the week contributing circa 29% to the week’s turnover. Commercial Bank and Nestle Lanka also attracted significant trading interest by investors during the week. On the other hand, net profits attributable to shareholders of 71 companies released so far improved 0.6% YoY for 1QCY2014. In the meantime, CSE imposed a trading halt on Sierra Cables at the request of the company’s board of directors due to a discovery of significant misstatements in the company financial statements. Further crossings were witnessed on counters such as John Keells Holdings, Nestle Lanka, Commercial Bank, Ceylon Tobacco Company, etc while dividends were announced by People’s Leasing & Finance, Hunas Falls, Bairaha Farms, Haycarb, etc. The week saw foreign purchases amounting to Rs. 1,843.7 m whilst foreign sales amounted to Rs. 671.4 m. Market capitalisation stood at Rs. 2,644.9 b and the YTD performance is 6.8%.

CB rates decision to determine market sentiment

By Acuity Stockbrokers Markets closed on a high note yet again last week, sailing past the 6,300 mark to hit an 11-month high. Despite some mid-week profit-taking paring down early gains, the main ASPI recovered 30 points on Friday, to help push the broad market index to a Y-T-D (and 11-month) high. Markets since mid-March have been on an uptrend as investor sentiment has rebounded on the back of lower interest rates and an easing off of the foreign equity selloff. Prime lending rates have declined 134bps since January while rates on Government securities have declined between 97-127bps. The foreign equity sell-off that dominated the early part of the year meanwhile, has reduced significantly; net foreign outflows declined to Rs. 0.35 b in April (from Rs. 5.10 b in February) and has recorded a net inflow of Rs. 7.88 b so far in May. Corporate earnings for the quarter ending March 2014 meanwhile, have been broadly positive with approx. 60% of the 66 corporates that have reported earnings thus far recording Y-o-Y gains. We expect market sentiment in the week ahead to be largely determined by the Central Bank’s rates decision.