History fails to repeat in Sept., yet with YTD 2.2% return Colombo Bourse remains Asia’s best!

Monday, 3 October 2011 00:42 -     - {{hitsCtrl.values.hits}}

The history of super September failed to repeat itself this year as the month ended last week, yet with a 2.2% return, Colombo bourse remains Asia’s best performer.

Analysts said the fact that a mere 2.2% return in terms of All Share Price Index’s movement reiterates the overall struggle of Asian bourses.

The month of September, which historically has been CSE’s best (between 2002 and 2010, CSE had gained in September except in 2008) , turned out to be a disappointment in 2011. The market saw around Rs. 50 billion in value wiped off during the month and the ASI closing at 6,783 points, lower by nearly 100 points from August close.

The redeemer for 2011 September was the fact that its last week saw the bourse closing on the up. The ASI closed  up by 49 points (0.7%) and the MPI edged up 21 points (0.4%).

Perhaps since there was less to comment about activities in the market, most brokers opted to look outside to draw strength and woo investors back to buying mode.

Acuity Stockbrokers said the country’s macroeconomic picture continues to brighten, with the latest data on the Balance-of-Payments (B-o-P) and external trade indicating positive momentum. B-o-P components Foreign Direct Inflows rose 98.6% Y-o-Y (from H1 2010) while foreign inflows to the Government (including proceeds from the recently issued 10-year Sovereign Bond) rose 72.4% Y-o-Y y-t-d, helping offset a wider trade deficit.

“The positive sentiment stemming from the recent spate of encouraging macroeconomic indicators and estimates should filter down to financial markets in the months ahead. Fundamentally sound corporates are more likely to benefit from this encouraging macro scenario. We thus advise investors to accumulate a portfolio of fundamentally-sound stocks over illiquid stocks that have dominated markets thus far,” Acuity said in its weekly report.

                  It said the Central Bank’s relaxation on exchange control measures enabled corporate entities to borrow from foreign sources, which resulted in 14 private companies obtaining foreign loans amounting to US$ 197.1 million by mid-September 2011.

In addition, the Central Bank granting permission for overseas companies to open places of business created 20 new foreign companies commencing business year to date. Furthermore, the Securities and Exchange Commission during the week announced the appointment of a high level and unbiased consultative committee for the development of capital markets and to ensure the healthy and comprehensive progress of the industry.

“Overall fresh foreign investments and the capital market consultative committee are expected to bring in light to the gloomy speculative-dominated market for the fundamentals to regain the rightful throne,” Asia Wealth Management said.

Quoting a poll it had done, Reuters said last week that world stock markets would recover next year from a nightmarish 2011 that has wiped trillions of dollars off share prices. Its poll showed almost all major stock indexes ending 2011 in the red.

Darkening economic prospects and fears the euro zone debt crisis will unravel into financial catastrophe sent global stocks plummeting around 14% since the last quarterly poll of equity strategists in June.

Only the Dow Jones Industrial Average and South Korea’s KOSPI are expected to finish the year with gains compared with 2010’s closing levels, among the 19 major stock indexes covered by the Reuters polls over the last week.

World equities have already lost around $ 3.7 trillion dollars in market capitalisation since the start of this year — more than the nominal Gross Domestic Product of Germany.

Even by midway through next year, analysts expect only a handful of stock indexes — seven out of 18 — to top their closing 2010 levels. By comparison, world stocks rose around 30 per cent in 2009 and around 10 per cent last year.

There is at least some support for the notion that equity markets should start rising again, other than the perennial bullishness of equity market analysts.

For one thing, global shares look undervalued compared with historical averages. The MSCI World Index is currently trading a little over 10 times 12-month forward earnings, the lowest since December 2008, and considerably below the average of 14.3 over the past decade.