Bourse still draws a beeline

The investing public is increasingly taking the equity route and bearish sentiments throughout or negative returns at times have failed to be deterrents, judging by the latest data on new entrants.

Between January and July this year a staggering 74,000 new CDS accounts had been opened, already surpassing the 2010 full year figure of 57,285. The number of new CDS accounts opened in 2010 was the highest ever and it is likely that 2011 full year will produce an imposing total.

In comparison to 2010 full year data, the first seven months of 2011 figure reflect a 29% increase or nearly 17,000. As against the first seven months of last year, the current year’s comparable figure shows a staggering 231% increase or 51,682 new accounts.

Analysts said the steady increase in new investors was encouraging because it was amidst the bearish behaviour of the bourse, especially in recent months.

Perhaps largely on account of the flood of IPOs, March saw a record near 22,000 new accounts opened, preceded by 13,000 in February. Between May and July the average has been over 7,000 monthly, which is highly encouraging. As at end 2010, the total number of CDSs amounted to 554,192, up by 12% over 2009 figure of 496,907. As at end July the cumulative number has risen to 628,192. In comparison to record figures in 2010 and so far in 2011, the previous highest was in 2009 amounting to 18,705 whilst during years 2006 and 2008 it ranged between 11,833 and a high of 15,000.

Thanks to Securities and Exchange Commission (SEC)-approved relaxation of credit rules, the Colombo bourse got a lift during the past two weeks, improving the year-to-date return to 4.4%. It turned negative in late July. However, the Milanka Index continues to languish with a negative return now at 11%.

The boom in new investors has been ably aided by new listings, which is a record 25 year-to-date. This, however, includes listings by way of introductions especially registered finance companies under a Central Bank directive.

With improved investor sentiments and rebound in turnover levels, most analysts expect a return of IPOs, though in a more phased-out manner during the remainder of the year.

The interest among the investing public in getting to know prospects in the capital market was also amply evident by the large crowds at the Investor Day organised by the SEC in association with the CSE. Thousands have thronged to events held so far in Galle, Kandy and Kurunegala, whilst future ones are being planned in Negombo, Anuradhapura, Badulla and Matara in the next few months. Increased investor education via electronic media has also elicited interest among the public.

With interest rates forecast to remain at the low end of single-digit levels, most analysts opine that the equity market is the only hope for the public for better returns. Strong outlook for economic growth and impressive corporate earnings have further backed prospects for the market though it continues its struggle in attracting institutional investors, both foreign and local.

DNH Financial Ltd. last week sounded highly bullish of the Colombo stock market as it is forecasting the benchmark All Share Index (ASI) to hit the 7,500 points level by end third quarter and 9,000 points level by end 2011.

“While the SEC’s decision to allow stock broking companies to provide margin facilities to clients based on their liquidity capacity is definitely encouraging, we expect investors to now focus more significantly on corporate fundamentals, which would provide the necessary catalyst for a sustainable rally leading to the market re-rating comfortably above the 7,500 levels during 3Q2011 and reduce the somewhat fear-based emotional selling that has characterised certain periods of trading over the last few weeks,” DNH said in its weekly stock market review.

The broking firm expects a number of themes to emerge over the next few weeks, which it said would shape market trajectory; prolonged nervousness in the global markets as they continue to capitulate to US and euro zone debt tensions, conversely, record performance in the Sri Lanka economy and strong double digit corporate top line as well as bottom line growth and improved margins, cheap PEG valuations in the majority of the companies in our universe, and the relative unattractiveness of alternatives such as T-Bills, fixed deposits or real estate.

“The convergence of all these factors will provide the perfect backdrop for the Colombo bourse to comfortably breakthrough the 9,000 resistance level by year-end, generating a return of 25-30% from current levels. We are not unaware, however, that we may encounter sporadic lumps and bumps along the way as we climb a solid upward slope, but our conviction for equities remains well and truly strong and justifiably so,” DNH said.