Investors advised to curb pursuit of speculative stocks

Monday, 4 July 2011 00:23 - - {{hitsCtrl.values.hits}}

The preoccupation among investors, especially retailers, of going after speculative stocks is being discouraged, urging them to focus on fundamentally robust companies.

“We advice investors to curb their pursuit on low and mid cap speculative counters as the risk adversities are high. This may create a negative sentiment on the potential and incumbent investors about the bourse,” Asia Wealth Management said.

Though anticipating the market to prolong with negative momentum, Asia is advising investors to accumulate fundamentally robust counters at these attractive prices to gain on the subsequent bull run.

Last week the benchmark ASI was down 47.85 points (WoW) and the MPI was down 94.90 points.

Acuity Stockbrokers said the Colombo bourse remained bearish with both indices continuing to lose ground, amidst persisting selling pressure to meet regulatory clearing and investments in primary market.

The year to date market return amounts to 3.15%, while the MPI records a year to date loss of 10.2%.

The market recorded a gain of 35.7% during the same period in 2010. The market PER stands at 22.9x while the PBV is 2.9x.

“Current market levels should spur buying interest ahead of the June earnings season, in selected stocks within key sectors such as Banking, Manufacturing and F&B which seem attractive on valuations at current prices. Liquidity is expected to improve mid July aided by the IPO refunds flowing back into the bourse,” Acuity added.

NDB Stockbrokers said that due to the burden of debtors which resulted in forced selling, the overall weekly performance was negative.

Asia in its report also said the Colombo bourse continued its downward momentum despite higher turnover contributions by high cap counters. Big block crossings were seen on few large caps such as Aitken Spence & Co. and Aitken Spence Hotel Holdings with Distilleries Company of Sri Lanka which had crossings throughout the trading week mainly due foreign interest.

On Saturday the Weekend FT reported that the decline of Milanka Price Index (MPI), widely reflective of blue chip and active stocks, surpassed the 10% threshold this week as a more credible recovery continued to be elusive for the Colombo bourse.

The MPI dipped by 1.47% to finish the week at 6,344 points, reflecting a year-to-date decline of 10.15%. Last week the year-to-date dip was 8.81%. When compared with MPI’s 2011-peak level of 7,327 points, this week’s closing reflects a dip of 13.4%.

The deteriorating performance of MPI is as against 3.15% year-to-date growth in the All Share Index (ASI). However, the latter confirms the downward volatility of the benchmark index as well when compared with the 2011 peak of 17.7% year-to-date gain by mid-February.

In June alone ASI had shed 7.6% mainly due to forced selling, in line with the policy of the regulator Securities and Exchange Commission (SEC) to recover credits, aiming to eliminate all credit dealing by end 2011.

MPI comprises some of the best blue chips and active stocks, prompting most analysts to showcase it as a better barometer to gauge the true investor sentiment. However, overall MPI has been on a continuous struggle, further dampening investor sentiment as well as a more credible recovery in the bourse.