Bourse loses Rs. 95 b in value

Asia’s best performer suffers biggest day drop; In comparison to 1 Oct, Rs. 197 b in value wiped off from stock market

Asia’s best performing Colombo stock market yesterday lost Rs. 95 billion in value, in what was the biggest day drop as investors turned weak-hearted.

The change of heart analysts say was owing to multiple reasons, including profit taking, margin account settlements, political undercurrents as well as negative sentiments following UNP MP and Economist Dr. Harsha de Silva warning over a televised debate in a private channel that the bourse was a bubble.

Unlike previous falls or corrections, the bourse was consistently heading south yesterday from the moment it opened. A few diehards were anticipating fresh buying would see a change of course, but were eventually disheartened it wasn’t so.

In effect the market saw a staggering Rs. 95 billion in value wiped off as market capitalisation fell to Rs. 2.161 trillion, from Rs. 2.256 trillion on Monday. Yesterday’s value if compared with the 1 October figure reflects a fearsome decline of Rs. 197 billion.

The ASPI declined by 4.4% and the more active MPI by 4.5%, prompting analysts to say it was the biggest-ever absolute one-day fall. It was also the highest percentage fall since 21 January last year whilst the ASPI, at 6,534 points, was the lowest since 20 September.

The year to date growth of the ASPI also fell below the 100% mark to end the day at 93%. The market has shed over 9% since hitting an all-time high of 7,207.75 on 4 October.

Reuters said market fell as retail investors sold into a correction in Asia’s best performing and most expensive market this year. “A bit of panic selling and profit-taking was there,” Reuters reported, quoting a stockbroker asking not to be named. “Some investors are raising funds for upcoming IPOs and some others sold shares to settle their credit transactions.”

“The market plummeted nearly 300 points during the day bringing down the year to date market performance to 93% from Monday’s 101%. The 4.4% dip in the broad market is recorded as the highest correction the Colombo Bourse has seen over the years on a single day. The market witnessed investors booking profits during the day,” Asia Securities said.

“Prices continued to drop throughout the day and closed at levels witnessed during mid September. The fall in prices is possibly due to the margin account settlements. The prices rose rapidly over the last few weeks,” NDB Stockbrokers said.

Diversified and Banks, Finance & Insurance sectors were the highest contributors to the market turnover although the sector indices dropped by 4.77% and 4.34% respectively.

Premier conglomerate John Keells Holdings was the highest contributor to the market turnover with two crossings amounting to 1,000,000 shares at Rs. 320. Price declined by Rs. 11.90 (3.66%) and closed at Rs. 314.

Hayleys also contributed to the market turnover with two crossing of 1,120,000 shares at Rs. 340, while the price declined by Rs. 1.50 (0.44%) and closed at Rs. 343.

Another three crossings were also recorded: 350,000 shares (100,000 at Rs. 210 and 250,000 at Rs. 205.40) of Aitken Spence & Co., 370,240 shares of Sampath Bank at Rs. 248 and 200,000 shares of Distilleries at Rs. 177.

Reuters also quoting analysts said the bourse was due for a correction after a more than a 20 per cent rise in September alone and ahead of the release of third quarter earnings, which are due to start this week.

The index is in a neutral region since 6 October after being an overbought zone from 18 August with the 14-day relative strength index (RSI) at 50.8, 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 21.2 times, compared with 13.3 for all of Asia and 12.4 for global emerging markets, Thomson Reuters data showed.

Market turnover was Rs. 3 billion ($27.3 million), more than five times the 2009 average. Foreign investors sold a net Rs. 260.1 million in shares and they have overall sold Rs. 18.6 billion worth this year.

The rupee closed weaker at 111.98/112.00 per dollar from Monday’s 111.85/90, on importer demand for dollars and stock-related outflows, dealers said.

Bourse boom part of emerging markets bubble – Dr. de Silva

UNP’s Member of Parliament and economist Dr. Harsha de Silva yesterday reiterated that the artificially inflated Colombo bourse was part of emerging markets bubble which he blamed on the Government in general as well as manipulators in the market.

“The Colombo stock market has been highly inflated with vested play by state agencies and cronies whilst the recent Bull Run cannot be sustained,” Dr. de Silva argued.

He pointed out that the ‘breakneck speed’ Bull Run in the Colombo bourse along with inflow of speculative portfolio investments were taking place when Foreign Direct Investments (FDIs) had shrunk.

“These two extremes confirm the misalignment in marketplace sentiments,” he said adding that the “ground realities in were far removed.” He claimed that declining FDIs truly reflect the lack of confidence over the way the Government was managing the country.

These and some of the other opinions expressed by Dr. de Silva at a Monday night debate on TNL TV were widely attributed to the dramatic fall in the Colombo bourse yesterday by analysts. They said that even when he went public two previous times with his warnings, the market tumbled whilst even some UNPers who dabble in shares had been critical of his frank assessement.

De Silva also reiterated his popular assertion that state funds especially the EPF have been irresponsible in their investments thereby creating an artificial boost in the stock market. He added that certain unscrupulous investors and players were cashing in by adding fuel to the fire.

Quoting the Institute of International Finance (IIF) has also recently warned about the Emerging market bubble.

De Silva also questioned the effectiveness and efficiency of the capital markets regulator. “The SEC said that it will put in place surveillance in the stock market to detect manipulators within a month but one and a half months have passed by with no progress,” he alleged.