A half Bourse!

Stock market ends week with activity 50% less than the previous week exposing inherent fundamental weaknesses despite temporary boost from relaxation of

broker credit to clients

The Colombo stock market yesterday finished the week with half the activity enjoyed in the previous week reinforcing and exposing the inherent fundamental weaknesses.

Turnover this week was only Rs. 8.65 billion, 55.4% less than the previous week figure of Rs. 19.4 billion whilst volume of shares traded was 338.5 million, 53.4% less than the 726.79 million shares in the previous week.

The week ended 19 August was boosted by the 16 August Securities and Exchange Commission (SEC) directive enabling broker credit to clients. Whatever positivism arising from that breakthrough fizzled off by early this week. The market also lost Rs. 35 billion in value during the week.

Analysts said how the market behaved this week reinforces as well as exposes the inherent fundamental weaknesses such as lack of institutional play by both foreign and local in addition to the underlying lack of confidence in general.

For the week ASPI and MPI declined 1.42% and 1.77% respectively as opposed to gains of 1.74% and 2.39% the previous week.

With returns being less than 4% year to date, the stock market has now become almost equivalent to bank savings in terms of an option for investment whilst the fixed deposits business as well as zero-risk Treasury Bills provides higher return of 11 to 7%.

However other analysts found strength from the rebound in sentiments as well as buying during the past two market days. Thursday saw a welcome finish with ASI up 26 points and MPI by 31 points whilst yesterday ASI gained by over 13 points (0.2%) whilst MPI was flat. Turnover was also up 22% to Rs. 1.98 billion over Thursday. Earlier loses were greater hence finishing the week negative.

Continued speculative trading driven by a select few high net worth investors ensured liveliness in the Bourse prompting analysts to point that this segment was keeping Colombo alive.

A half...

“Speculative trading continued to take the lions’ share of the market proceedings with retail & high net worth investor participation seeing a rise,” SC Securities said.

“Trading kicked off with a positive start and remained in the green throughout the day. The retail community proved to be the most active class of investors as they continued to their speculative ride on the low - mid cap caliber,” noted Arrenga Capital.

SC Securities said the primary contributors to the days’ market turnover were Colonial Motors, Singer Finance, HVA Foods, Colombo Land & East West Properties. The top five contributors accounted for close to 50% of the days’ total turnover.

NDB Stockbrokers said Banks, Finance and Insurance sector was the main contributor to the market turnover (due to Singer Finance) and the sector index increased by 0.90%. The share price of Singer Finance increased by Rs. 7.20 (23.92%) and closed at Rs. 37.90. Around 7.2 million shares of Singer Finance changed hands. A few other finance sector counters including Multi Finance and Vallibel Finance also saw some investor participation, Arrenga said.

Motor sector also contributed significantly to the market turnover (due to Colonial Motors) and the sector index increased by 3.53%. Colonial Motors was the main contributor to the market turnover with 818,400 shares traded for Rs. 323.7 million. The share price increased by Rs. 68.10 (19.71%) and closed at Rs. 408.

United Motors gained by 9%.

The share prices of the speculative stocks which gained for the past couple weeks were volatile today with high activity. Renewed interest was witnessed in Serendib Hotels. The share price closed at Rs. 28.90, gaining Rs. 1.70 (6.59%).

Arrenga Capital also said rally on HVA Foods continued with active interest from high net worth individuals and retailers. The property sector counters including Colombo Land & Developments and East West Properties were found in the day’s retail picks with The Lanka Hospitals Corporation also falling into the list.

Lion Brewery (Ceylon) registered a block of 146,000 shares being crossed off at Rs. 200 whilst Ceylinco Insurance saw a 50,000 parcel being transacted at Rs. 640.

Reuters reported that stock market gained in light trading but concerns remained over the lack of liquidity.

It also said foreign outflows of Rs. 11.8 million took place and thus far in 2011, offshore investors have sold Rs. 10.46 billion, after a record Rs. 26.4 billion in 2010.

Reuters also said on Friday, European shares and the dollar fell with markets playing down chances of a major shift towards further economic stimulus from U.S. Federal Reserve chairman Ben Bernanke later in the day.

The rupee meanwhile ended flat at 110.00 a dollar, despite heavy importer dollar demand as a state bank, through which the Central Bank directs the market, protected the currency by selling it at 110, dealers said.