With 15% gain Colombo stock market beats BRICS on YTD basis

Monday, 3 June 2013 01:31 - - {{hitsCtrl.values.hits}}

The Colombo stock market has risen by 15.8% on an YTD basis (dollarised), well ahead of BRICS markets, according to broking firm DNH Financial.

It said while the BRICS have historically experienced fast growing economies, rapid FDI and FPI inflows and have remained a darling amongst hedge fund investors over the years, Sri Lanka could offer an effective panacea and ‘sharpe’ solution for Emerging Market (EM) portfolios seeking sustainable and robust domestic focused growth emanating from a local consumption cycle largely unaffected by the current global macroeconomic risks.

“While it is acknowledged that for foreign investment managers, investing in the Sri Lankan Bourse is not without challenges (considering its relatively low market liquidity which has historically been a deterrent for EM funds seeking investments), with market liquidity levels now generally improving, it is believed that the Bourse will attract increased foreign buying interest going forward,” DNH said.

It said whilst a mixed bag of quarterly corporate results were released last week, earnings have been largely positive with margin improvement offsetting lower than expected top line growth for several counters.

Noting that foreign participation has generally been the market catalyst over the last few weeks, DNH expects that market activity will be relatively restrained in the immediate term due to the easing off in international markets (and hence foreign buying).

“However, momentum is expected to gather steam in the medium to longer term with a break to the upside from the relatively sideways flag that has been experienced as foreign interest re-emerges,” DNH said.

“ Consequently, the current market environment is viewed as an opportunity for medium to longer investors to clean their books, re-align their portfolios and maintain a healthy investment horizon and focus on companies that will deliver quality earnings,” it added.

“While the majority of the 1Q2013/4Q2012 corporate results have been released to the market, it is highly important to determine the source of profits, whether a result of top line growth or an increase in other income or a dramatic cut in costs that could have a negative impact on future productivity.

Of perhaps even more significance is the sustainability of such earnings. In this respect, investors are advised to seek quality stocks, both in terms of the top line and the bottom line but which are also sufficiently liquid,” DNH emphasised.