No ‘Wonder of Asia’ at Bourse

The Colombo stock market continued its miserable run in the New Year with no iota of ‘Wonder of Asia’ mindset or optimism.

Whilst recording its fifth successive negative session, the Colombo bourse has seen Rs. 68 billion in value wiped off since the New Year and the All Share Index’ negative return topping 3% mark.

Yesterday’s volume of shares traded at 11.5 million is nearly nine times lower of past year’s annual average. Turnover was only Rs. 434 million, now a standard but slightly above Friday.

The 8.5% dip in 2011 and the 3% + negative run along with drying up activity won’t bring smiles to Commissioners of the SEC when they hold their first meeting for 2012 on Wednesday.

One analyst with a good sense of humour even remarked that unless SEC keeps its stubborn egos aside and take a honest look at the Bourse, the Commissioners won’t have a market a regulate.

The agenda at the Wednesday’s meeting includes broker recommendations such as relaxed credit rule, removal of price band and replacing it with circuit breakers and the tough proposition of deciding on the successful candidate for the Director General post.

Some analysts were insistent that broker recommendations won’t make a major positive impact on the market which appears to be suffering from a crisis of confidence whilst consensus is that they will give a much needed boost for sentiments. SEC has taken an unusually longer time to decide on two issues which has largely got market agreement but it appears that the new Chairman Tilak Karunaratne was keen to make a once and for all thorough decision being aware of flack over past revisions.

Broker comments over yesterday weren’t encouraging either.

“Colombo bourse opened the week on a negative note with investors continuing their passive mood,” SC Securities said whilst Lanka Securities noted “The Colombo equity market started the new week with a significant downfall where indices witnessed heavy dips.”

“Activity levels eroded drastically to touch the lowest since 01.04.2010,” Arrenga Capital added.Both the indices took a gradual downward trend as the ASPI and MPI closed with 57.6 and 62.7 point dips respectively, thus taking the YTD performance of the benchmark index to now -3.3%.  “Negative investor sentiments continued to overrule the bourse, as the losses were made across the board with the day’s losers’ outperforming gainers’ by 93,” it added.

Overseas selling continued in banking heavyweight Commercial Bank of Ceylon, as the counter spearheaded the day’s turnover list adding nearly 33%. The counter recorded further three off – market deals accumulating to 1.3 milion shares being crossed off at a negotiated price of LKR100. Interest was also visible in the Non – Voting share of Commercial Bank of Ceylon, as the counter closed marginally up. Interest seemed to evolve around the a same set of counters, as another heavyweight John Keells Holdings, continued with interest as it saw a single block carrying 250k shares being traded at Rs. 167.0. The blue chip saw its price gliding down further as it closed at Rs. 167.0 with a 0.5% dip, after touching a low of Rs. 166.6. Tokyo Cement [Non – Voting] also retained some interest, however saw its price touching a 52 – week low of Rs. 28.6 yesterday. The counter closed with a loss of 4% at Rs. 28.8.

Following the decision to extend the cut - off date for 2012 warrants in Environmental Resources Investments, selling pressure emerged in the counter along with its Warrants [W: 0002, W: 0006, W : 0003]. The counters continued to be actively traded as they closed with losses of 6.6%, 6.7%, 5.3% and

5.3% respectively snapping the early gains, where the voting share touched a 52 – week low of Rs. 29.7.

Interest was seen in banking & finance sector players including Central Finance, Seylan Bank, DFCC Bank and Nations Trust Bank, whilst retail play continued in Colombo Land & Development, Regnis Lanka, Orient Garments, HVA Foods and Panasian Power. Furthermore, conglomerate Hemas Holdings, which have had a silent play over the recent past, saw its price gaining by circa 4% amidst thin volumes at its close of Rs. 31.5.

DNH Financial said the fear and panic that have been rattling global investors over the Eurozone debt crises is unlikely to dent the performance of the Sri Lanka bourse as there appear to be a clear polarization between the performance of the Sri Lanka equity market vis-à-vis global peers.

“Foreign fund managers are therefore advised to exploit Sri Lankan equity opportunities using an active portfolio management approach in their stock selection process in order to generate above average alpha,” it added.

“Given that a secular market generally begins with a relatively low PE and average economic growth, we believe that the current consolidation process will deflate the market to a more reasonable valuation but at a superior economic growth rate,” argued DNH. “This we believe would provide the tailwind necessary to thrust the market into a sustained rise resulting in a gradual increase in multiples, however not too high to cause a headwind. We believe that the PE compression consequently will emanate from firm EPS growth which would trim any excessive build up in valuations thus keeping them at reasonable levels during 2012,” the broking firm emphasised.