Everything going wrong for Colombo bourse!

A bad omen is seemingly hovering around what was once the world’s most consistent best performer, the Colombo stock market.

After seeing the benchmark All Share Index dip to its lowest level on Tuesday, activity levels shrank, forcing the CSE’s turnover to plunge to its year’s lowest of Rs. 687.1 million. The value technically was the lowest since 17 December 2010 and below last year’s and this year’s average of Rs. 2.4 billion and Rs. 2.6 billion respectively.

At 6,347.72, the ASPI level yesterday was the lowest since 29 November 2010. It has fallen 6.4% since 1 October.



The Colombo bourse is Asia’s fifth-best performer with a year-to-date loss of 4.3% after being on the top for most of 2011. In 2010 and 2009 it was the world’s second best performing market and Asia’s best.

Wednesday’s total volume was 70 million against a five-day average of 60.5 million. The 30-day and 90-day average trading volumes were 113 million and 122.3 million. Last year’s daily average was 67.9 million.

Price wise the dip yesterday was less volatile though both indices declined after having shot up in early morning trade, raising hopes of market stakeholders.

“The market started the day on a slow note and with a fresh buying spree, the ASPI recovered by more than 40 points during early trading hours. However, during the latter part of the day, the market lost ground as selling pressure picked up across the board and both indices closed in red. The turnover level for the day, ASPI and MPI were the lowest recorded for the year,” NDB Stockbrokers said.

“The market struggled to maintain its positive start in the morning with margin calls stifling local participation as institutions and foreign investors were missing in the picture. Dull trading led the market to register a turnover of only Rs. 687.1 m, the lowest for 2011. Today’s market performance led it to embark on the lowest turnover page after registering Rs. 671.2 m on 15 December 2010, and hence pulled down the 12-month annual average to Rs. 2,579.6 m,” concurred Arrenga Capital.

Market analysts were unanimous over the dip and lack of activity, forced sales to clear margin debt and increasing worry about liquidity.

Reuters said the recent fall has pushed the index deep into oversold territory. The relative strength index on Wednesday fell to 17.44 from Tuesday’s 18.86, well below its lower neutral range of 30.

Yesterday power and energy sector was the main contributor to the market turnover (due to Panasian Power) and the sector index increased by 0.12%. The share price of Panasian Power increased by Rs. 0.10 (2.27%) to close at Rs. 4.60. A crossing of 24,500,000 shares was recorded at a price of Rs. 4.50.

HVA Foods also contributed to the market turnover. The share price of HVA Foods increased by Rs. 0.80 (2.27%) to Rs. 36. Diversified Holdings sector also contributed to the market turnover (due to John Keells Holdings) and the sector index decreased by 0.32%. The share price of John Keells Holdings decreased by Rs. 0.40 (0.20%) to close at Rs. 198.

Arrenga said local investors were seen in action with penny stocks such as Panasian Power, HVA Foods, Radiant Gems, Dankotuwa Porcelain, Blue Diamonds and Serendib Hotels falling into the scene again.

It said that with the ongoing deep nose drive, the market would prove to be increasingly attractive expecting it to elevate further from its current 4Q trailing PER of around 15.1X as the 3Q2011 earnings flow in. “The sturdy counters continue to witness just marginal price changes, leaving room for further accumulation for the bargain hunters. We believe that the market at present lacks real money investors whilst it tries hard to erase the speculative unhealthy small players,” it added.

DNH Financial said that with the market descending below the 6,500 support level, it is easy to shy away from the market on the conviction that it may lose further ground.

“While we don’t rule out the possibility of further decline (albeit moderately) on the back of retail selling in certain counters, we are nevertheless sufficiently convinced that the 3Q2011 results should provide the necessary backdrop for a market re-rating with valuations becoming more and more attractive as a result of the twin impact of a decline in stock prices coupled with accelerating earnings growth,” DNH added.

The Colombo bourse also witnessed a net foreign outflow of Rs. 136.7 million and thus far in 2011, offshore investors have sold Rs. 17.1 billion, and sold a record Rs. 26.4 billion in 2010.

Meanwhile, the rupee closed flat at 110.18/20 a dollar for a 14th straight day, as a State bank continued dollar sales at Rs. 110.20 in spite of heavy importer dollar demand, dealers said.





FT Quote

Amidst the ongoing deep nose drive, the market would prove to be increasingly attractive. It is expected to elevate further from its current 4Q trailing PER of around 15.1X as the 3Q2011 earnings flow in. The sturdy counters continue to witness just marginal price changes, leaving room for further accumulation for the bargain hunters. We believe that the market at present lacks real money investors whilst it tries hard to erase the speculative unhealthy small players – Arrenga Capital