No show by SEC Santa this X’mas!

• Broker and investor anxiety to persist in festive season as regulator puts off decision on price band, credit rule relaxation

Brokers and investors are likely to miss festive cheer as the Securities and Exchange Commission (SEC) yesterday felt it wiser to require more time to agree on the lifting of the price band and relaxing credit rules.

The Commissioners of the SEC held their first meeting under the new chairmanship of Tilak Karunaratne, but after a thorough deliberation decided to defer a final decision on broker recommendations to their next engagement, likely to be in the New Year.

Investors and brokers have been impatient ever since the industry recommended to both the SEC and President Mahinda Rajapaksa that lifting of the contentious price band and allowing two or three times net capital broker credit to clients would give a boost to the ailing stock market.

Following the Commis-sioners gathering, an SEC Spokesman told the Daily FT that a decision on broker requests was put off for the next meeting.

There was high expectation over a decision from yesterday’s meeting and this was evident by the fact that the market rose in early morning trade, though sentiments fizzled out by close.

Some analysts were concerned over indecision or delay on the part of the SEC to two straightforward recommendations.

In fact when the Colombo Stock Brokers Association (CSBA) originally proposed the moves during a meeting with former SEC Chairperson Indrani Sugathadasa, the impression conveyed by the regulator was that sympathetic and positive consideration was in order. There was an understanding that with the help of additional information, the SEC was to make a favourable decision at its next meeting.

However, the Chairperson resigned, while CSBA activated a direct line of communication with the President, leading to an unprecedented first-of-its-kind meeting between the country’s Chief Executive and broking community early this month.

It couldn’t be confirmed whether the SEC Commissioners felt any decision on their part would lift the market from its current precarious situation, with near Rs. 50 billion lost in market capitalisation since the new Chairman assumed duties.

Other analysts claimed that the lifting of the 10%-five market-day price band would be a psychological boost, though it may fail to trigger a major turnaround. They pointed to the market’s negative performance on Monday despite the Central Bank lifting the 5% ceiling on commercial bank lending to trading of securities.

However, CSBA yesterday welcomed the lifting (see box story), whilst analysts noted that unfortunately the holiday mood dented any major positive impact.

Yesterday the Colombo bourse slumped to its lowest turnover in two years of Rs. 382 million and volume to a one-month low, with a credit crunch and the year-end doldrums weighing on sentiment.

The ASI fell 0.15 per cent (an improvement in comparison to 0.5% dip) or 9.02 points to 5,851.94, lowest since 25 November. Turnover of below Rs. 400 million was lowest since 14 December 2009 and well below last year’s average of Rs. 2.4 billion and this year’s Rs. 2.3 billion.

Total volume was 13.6 million shares, the lowest since 11 November, against a five-day average of 19.7 million. The 30-day and 90-day average trading volumes were 47.3 million and 93.1 million. Last year’s daily average was 67.9 million.

DNH Financial said the market opened on a positive note but succumbed to retail selling pressure during the trading session to close a tad lower at 5852. “Reflecting the lacklustre market sentiment, turnover declined by 28.9% to Rs. 382 million, the lowest level YTD,” it added.

“Turnover recorded a new low with little activity in the market with holidays approaching. Retail counters continued to account for majority of market turnover while index heavy John Keells Holdings and Commercial Bank also lifted performance,” noted NDB Stockbrokers.

Arrenga Capital said investor reaction to the media release on the Central Bank’s step to lift the current 5% limit on margin facilities by the commercial banks led the indices to shot up irrationally as the ASPI and MPI touched high points of 5,906.08 (up 45.1 points) and 5,170.15 (up 64.7 points) respectively within first hour of trading.

“However, the rally could not sustain, as the indices continued to lose ground, closing the day marginally in the red, amidst very thin activity levels,” it added.

“The Colombo bourse contracted further today with lack of investor confidence demonstrated by shrinking trade volumes,” emphasised Asia Wealth Management.

Market heavyweight John Keells Holdings PLC, which fell 1.7 per cent to Rs. 167.30, led the market fall. The bourse saw a net foreign outflow of Rs. 39.4 million on Tuesday, and foreign investors have sold 18.2 billion thus far in 2011, and a record 26.4 billion in 2010.

The Colombo Stock Exchange is Asia’s 11th-best performer with a year-to-date loss of 11.8 per cent after being at the top until June. It delivered Asia’s best returns in 2009 and 2010.

The rupee meanwhile closed flat at 113.89/90 rupees a dollar for a 20th day despite dollar demand, as the Central Bank spent $ 10 million defending it, dealers said.

The Central Bank on Tuesday said it could continue to maintain the rupee exchange by selling dollars from the foreign reserves as it expected large dollar inflows in the coming months.

The bank has spent around $ 500 million to keep the exchange rate steady since a three per cent devaluation on 21 November. It spent almost $ 2 billion this year until the end of September holding back depreciation pressure.