“Foreigners rushing into stocks; locals still turning a deaf ear”: Broker

Softlogic Stockbrokers is lamenting that locals are continuing to turn a deaf ear to record-breaking net inflow as foreigners are rushing into Lankan equities.

It said last week’s highlight was the aggressive accumulation by the foreigners into the steady lot, which has continued throughout 2012, taking the year-to-date net foreign inflow to over Rs. 38 billion.

Last week saw Rs. 1.2 billion in net inflow up by over tenfold from Rs. 161 million.

“During the past two years, Sri Lankan stocks have come down by around 15%, whereas the listed company earnings have grown by around 40%. In this backdrop the attractiveness of the Colombo Bourse, which has grabbed the attention of the foreign nationals who go by the rule ‘always invest for the long term,’ is being turned a deaf ear by majority of the local investors with the herd mentality, who prefer short-term gains,” Softlogic Stockbrokers opined.

According to Acuity Stockbrokers, total foreign purchases last week increased 62.07% (W-o-W) to Rs. 2.24 billion (relative to previous week’s total of Rs. 1.38 billion) while total foreign sales decreased 12.87% (W-o-W) to Rs. 1.05 billion (from previous week’s total of Rs. 1.20 billion). In terms of both volume and value, JKH and Chevron led foreign purchases, while Tokyo Cement and Commercial Bank led foreign sales, Acuity added.

The “surge in foreign investor interest” was also highlighted by Asia Wealth. It said both indices last week continued to oscillate within a narrow band with foreign and institutional investors being the most active players in the market. “A flurry of crossings was witnessed in number of large cap counters including John Keells Holdings, Commercial Bank, Chevron Lubricants, due to foreign institutional interest,” Asia added.

Whilst acknowledging the fact that equity markets have been both challenging and volatile over the past few months, DNH Financial said it firmly believes the ability to generate superior returns in the medium to longer term exists provided the right strategy is implemented.

“Global macroeconomic uncertainties could force foreign asset managers to square off global positions and identify new and fundamentally solid emerging markets resulting in a flow of funds into Asian equities such as Sri Lanka,” DNH said.

“We believe that the current price weakness in the Bourse provides a strong opportunity for medium to long-term investors to pick up attractively-priced growth stocks,” the broking firm added.

Notwithstanding the disappointing 3QGDP growth, DNH also believes that Sri Lanka’s structural story is still firmly intact, with the prospect of robust corporate EPS growth in 2013.

DNH is advising investors to be appropriately positioned by selecting stocks in an informed manner, focusing on sectors that will outperform on a sustained basis.

Asia Wealth noted that the Central Bank has revised the GDP growth for 2012 to 6.5% from 6.8% after the growth slowed down to 4.8% in 3Q2012.

“This was mainly due to internal and external shocks extending their existence, curbing the country’s growth potential. Even though the country’s external position witnessed some improvements after the policy measures taken during the beginning of the year, the country has challenges in achieving the target growth for 2012 due to the slowdown in the global economy. However, the CB indicated that the economy is poised to grow at 7.5%YoY for 2013E as estimated earlier and also expects the rupee to appreciate. This, coupled with a possible downward trend in interest rates, poses a positive outlook for 2013E compared to 2012,” Asia Wealth added.