Stock market on a swing!

The Colombo Bourse experienced sharp volatility yesterday only to be swayed to positive territory by a mere regulatory remark of an impending move of market support.

Investors began a fresh week in jitters as panic and forced selling owing to previous speculative play saw market dip by nearly 1.5% (or around 118 points) in the first half of the session. Unsure whether it was planned or not, news that regulator Securities and Exchange Commission (SEC) was favourably considering support to the market triggered a fresh buying spree propping the indices once again.

The intra-day movement of All Share Index (ASI) captures best the pulse of the market yesterday. The ASI eventually finished the day up 0.8% or over 55 points whilst Milanka Index gained by 0.7% or 46 points. Turnover was an average Rs. 1.8 billion.  Some independent analysts were dismayed by the way the market reacted for a mere regulatory remark of a move that had been on the cards since mid-last week.

“In a way how the market shot up shows the degree of immaturity of investors, especially retailers,” opined one analyst. Another said that the sharp volatility was uncharacteristic of a mature investor base.

Mobile news alert of Director General Malik Cader quoted as saying that SEC was favourably considering allowing stock brokers to grant margin facilities mid-day triggered the buying rally.

The impending move was following written representations made by Colombo Stock Brokers Association on 25 July. The Daily FT learns that SEC also met with representatives of CSBA on Friday. Despite impending support the market had remained lackluster until yesterday afternoon. The Commissioners of SEC are scheduled to meet on Wednesday to make a final decision.

It is learnt that allowing brokers to extend credit based on their net capital is largely aimed at helping small investors.

However, independent observers cautioned that whilst fresh regulatory support is welcome the Colombo stock market will continue to be beset by fundamental issues such as lack of local institutional play as well as fast exodus of remaining foreign investors with the latter being linked to volatile global financial markets.

“We need institutional investors, both local and foreign. Despite highly favourable outlook for the economy, corporate earnings and equity investments, local institutions have been apathetic,” lamented one market analyst. Others however justified institutions being on the sidelines given the highly speculative and punting run of the Colombo Bourse of late.

“Ideally we need all kinds of players rather than some abstaining owing to differences of opinion on valuations,” said another analyst.

Year to date the Colombo Bourse has offered only a 2.6% return in terms of ASI and a negative 12% return on the basis of MPI. Despite the current levels in comparison to over 17% year to date return in mid-February, some insist Colombo is still expensive whilst most brokers opine current valuations are highly attractive for medium to long-term investors. The dilemma however for Colombo is that it is currently surviving on account of highly short-term profit centric retailers.

Even yesterday this was evident as biggest gainers were not fundamentally sound blue chips (JKH and Carsons dipped) but stocks which have had speculative runs or now famous “Chicken Run.”

The major contributor to the days’ turnover was Grain Elevators (GRAN) which accounted for 21% of the total market turnover. Bairaha Farms (BFL), Guardian Capital (WAPO), Three Acre Farms (TAFL) & East West Properties (EAST) were the other top turnover generators for the day.

High interest was seen in the poultry related counters. GRAN traded heavily recording a notable gain of 15.71% (Rs.19.60). The counter closed at Rs.144.40 for the day. TAFL rose by 10% (LKR.12.30) over Friday’s close to end at Rs.135.40 while BFL climbed by 6.16% (Rs.18.10) closing the day at Rs.312.10.

Close to 2.5 mn shares of EAST traded today. The counter ended at Rs.25.90, climbing by 9.8% (Rs.2.30) over the previous days’ close.

Banks, Finance and Insurance sector also contributed significantly to the market turnover (due to Capital Development and Investment). The sector index increased by 0.94%. The share price of Capital Development and Investment increased by Rs. 82.80 (22.11%) and closed at Rs. 450.00.

Foreign participation amounted to 5.0% of the total market activity. At the end of the day foreign investors were the net sellers with a net foreign outflow of Rs.15.1 mn.