Bourse rebounds

The Colombo stock market bounced back strongly yesterday, raising hopes of investors and other stakeholders, whilst the momentum is likely to gather pace with the impending SEC support measures.

Turnover topped the Rs. 1 billion mark for the first time in nearly three weeks, whilst the improved sentiments along with return to buying mode by retailers as well as select high net worth investors saw the All Share and Milanka indices gain by over 1%. Overall, it was the biggest gain in over two weeks.

Volume of shares traded jumped to 85 million, highest in six weeks, partly due to debutant Asia Asset Finance enjoying transactions amounting to 38.5 million shares before closing at Rs. 4.20, up by 68% from its IPO price of Rs. 2.50. First day performance was impressive despite Asia Asset Finance being the only IPO in recent years to have failed to be oversubscribed.

“Albeit early volatility, the market continued its upward movement from Wednesday with turnover hitting Rs. 1 b for the first time in two weeks. Significant activity was seen in retail favourite counters such as GREG, DPL and BLUE with the participation of institutional and high net worth investors as well,” NDB Stockbrokers said.

Arrenga Capital said retail activity re-energised on the expectation of a relaxation to the current strict credit rules after the SEC on Wednesday announced that a final decision on the broker community proposals would be taken next Monday.

“This prompted positive hopes on investors, as the retail community in particular was quick to chase behind the speculative lot,” Arrenga added. DNH Financial echoed similar sentiments. “Reversing the lackadaisical movement over the last few days, the bourse edged closer to the 6,000 resistance level gaining 1.3% to close at 5,942, while the MPI broke through the all important 5,000 key level to end at 5,066 on hopes that the Securities and Exchange Commission will announce favourable credit rules on Monday 16 January,” DNH Financial said.

Reflecting the optimism, turnover increased by 84% to Rs. 1.06 billion with quantities of Environmental Resources Investments (ERI) changing hands that accounted for 26% of day’s total.

Speculatively-driven counter Environmental Resources Investments continued to be the star performer, as the heightened retail activity in the stock drove it to the top the turnover list with a circa 26% contribution. The counter continued to appreciate as it touched a high of Rs. 34.9, before closing at Rs. 34.4 advancing by a substantial 18.2%. Its Warrants [W: 0002, W: 0006, W: 0003] also followed the main share as they registered gains of 10.1%, 13.0% and 12.4% respectively.

Meanwhile, speculative chase also evolved around its related companies, Ceylon Leather Products and its Warrants [W: 0013, W: 0014] and Dankotuwa Porcelain as they climbed up by 10.2%, 15.4%, 14.9% and 12.6% respectively. Retail play was also evident in Blue Diamonds (+3.4%), Colombo Land & Development (+1.8%), Tess Agro (9.8%), HVA Foods (+3.8%) and Lanka Hospital Corporation (+6.0%).

Heavyweight John Keells Holdings became the only fundamentally-driven counter to appear among the top turnover list. However, the counter continued to shed as it closed at Rs. 163.9, dipping by 1.4%. Furthermore, interest was visible in Lion Brewery as it closed advancing by 2.7%.

“We believe today’s hasty drive in the market to be short-lived as it was driven mainly by the speculative lot. Hence, it’s highly likely that the market would take more time to witness a sustainable turnaround, led on the grounds of solid fundamentals,” Arrenga Capital opined.

DNH however expects the equity markets to gap up during the next week with a break to the upside from the relatively sideways flag experienced over the last couple of weeks once the rules regarding broker credit are finalised.

“Notwithstanding this however, we advice investors to reposition themselves for a medium term investment horizon while focusing on companies that will deliver quality earnings over the 4Q. We recommend investments in the industrial, banking, hotels, diversified and auto sectors, however using a highly selective approach as the chances of realising gains on a beta basis in 2012 will be limited. As such we advise investors to seek alpha while deciding on individual investments. Additionally, we advise those investors who opt for collective investment schemes to cherry pick asset managers that adopt a highly active bottom up investment method and process in their investment selection process,” DNH Financial said.

The Colombo bourse is the second-worst performer among Asian countries in the New Year after Pakistan’s market, with a 2.17 per cent loss so far.

Foreign investors were net sellers of Rs. 24.1 million worth of shares, extending the year-to-date foreign outflow to 287.1 million after 19.1 billion in 2011.

The index lost 8.5 per cent in 2011 and was Asia’s 10th-best performer after being top in the region until June. It was Asia’s best in 2009 and 2010.

The rupee closed flat at 113.89/90 to the dollar for a 36th straight session since a three per cent devaluation effective 21 November, with the Central Bank selling around $ 25 million to defend it, dealers said.

The bank has spent more than $ 875 million on keeping the exchange rate steady since 21 November. It spent a net $ 1.79 billion in the first 10 months of last year to keep depreciation pressure at bay.

On Thursday, the Central Bank said it expects dollar inflows in the next two months to soften depreciation pressure on the currency, which it will still defend despite International Monetary Fund pressure to stop managing the currency.