Foolish fall!

Bourse gets a black mark as weak hearted amateurs’ sell out forcing market halt after MPI plunges 5%; Return of bargain hunters as well as state funds help erase losses

One may call it unlucky 13th of October or blame it as an unknown jinx but yesterday’s stock market crash is widely linked to weak hearted amateurish behaviour by some especially new- comers to equity investments.

In a bizarre free fall, the active Milanka Price Index (MPI) plunged 356 points just after 10 a.m triggering the 5% fall forcing the Colombo Stock Exchange (CSE) to impose a trading halt. This was in terms of Circular No.01-12-2008 dated 8 December 2008. The ASPI had shed sharper too by that time.

The market halt at 10.29 a.m. caused further panic and a mini round of selling. At 10.29 a.m. the ASPI was 6,238, down by 296 points from Tuesday’s close. When trading resumed half an hour later it dipped further to a low of 6,159 points at around 11.10 a.m. Intra-day plunge was 5.7%. However bargain hunters smelled buying opportunities galore and picked up available quantities. Analysts said state funds too chipped in to further boost the recovery. Those with weaker hearts who sold out were licking their wounds when they returned to buying mode later on.

“The way some stocks fell on thin volumes confirm the amateurish trading by some, especially the new comers,” a fund manager lamented. Whilst some were greedy to book profit, forced sale on some positions ahead of formalisation of credit provisioning had partly contributed to the negative sentiments.

Nevertheless the late rebound was strong enough to erase earlier losses as well as close on the up. ASPI finished the day up 1.45% and MPI managed to be 0.6% higher. Despite the skirmishes price wise, turnover was a healthy Rs. 4.3 billion.

Irrespective of the sensational dip, Colombo remains Asia’s best performing with a 96% year to date return.

"The market witnessed a day of exceptional volatility as MPI dipped 5% which led to a trading halt but subsequently reversed sharply with a fresh round of buying to end higher," said John Keells Stock Brokers.

“Indices sank over 300 points to trigger a market halt during early trading. However buying interest returned with the resumption as the indices closed in the green. Selling pressure might be witnessed tomorrow as well,” NDB Stockbrokers said yesterday.

Reuters quoted unnamed analysts as saying state investment funds, which in the past helped push up the market when the bourse was on a declining trend, bought shares, which reversed the downtrend.

On Tuesday, the bourse plummeted 4.48 percent on panic selling as the Asia's best performing and most expensive market this year was amid an overdue correction.

The index is in a neutral region since 6 October after being in an overbought zone from 18 August with the 14-day relative strength index (RSI) at 54.4, middle of the neutral limits of 30 and 70, Thomson Reuters data showed. The index was at 92.4 on 1 October.

Sri Lanka's share index is trading at the highest forward price-to-earnings ratio in Asia and global emerging markets at 20.6 times, compared with 13.3 for all of Asia and 12.4 for global emerging markets, Thomson Reuters data showed.

Foreign investors sold a net 844.4 million rupees in shares and they have overall sold 19.4 billion rupees' worth this year.

The Best Performing Sector was oil palms up 10.39% whilst the worst was services down 1%.

Diversified and Banks Finance & Insurance sectors were the highest contributors to the market turnover. Diversified sector index inclined 3.14% while Banks Finance & Insurance index dropped 0.23%.

Premier conglomerate John Keells Holdings was the highest contributor (3 million shares with a turnover of Rs. 967 million) to the market turnover with nine crossings (621,970 shares at Rs. 312, and 608,900 shares at Rs. 315, 326,600 shares at Rs. 317 and 241,200 shares at Rs. 320).

Price inclined by Rs. 6.70 (2.14%) and closed at Rs. 320. Foreign holding of the company declined by 2,386,414 shares.

Lanka Orix Leasing also contributed to the market turnover with a crossing of 200,000 shares at Rs. 1325, while the price inclined by Rs. 1.90 (0.14%) and closed at Rs. 1,315.

Three crossings for 633,000 shares of Hayleys at Rs. 340 and a crossing for 250,000 shares of NTB Bank at Rs. 84 were also recorded.