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| Monday, 26 January 2004 |
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HNB weekly market review : Market to pick up with the optimism towards cohabitation The market saw a rather volatile week with the indices moving sideways creating trading opportunities for investors. The indices continued to slip on Monday, but the investors regained optimism towards middle of the week, despite the concerns of political uncertainty. Week on week the ASPI lost 24 points (2.1%) and MPI fell 52.6 points (2.54%) to close for the week at 1116.9 points and 2018.3 points. A highlight during the week was the purchase of 3% stake in DFCC by National Savings Bank on Monday at a premium price of Rs. 340. A turnover of Rs. 1.3 billion was recorded for the week with a daily turnover of Rs.260 million, which is advancement from Rs.246 million in the previous week. For the fourth consecutive week the foreigners remained net buyers having infused Rs. 146.2 million. Among the heavily traded stocks were SLT, JKH, Marawila Resorts, Colombo Land and Distilleries. Alliance declares its intentions to resume unconditional peace talks The Sri Lanka Freedom Party (SLFP) and Janatha Vimukthi Peramuna (JVP) placed signatures to their Alliance, and announced their willingness to resume talks with the LTTE without pre-conditions. According to newspaper reports, the alliance has expressed plans to take the latest set of proposals by the LTTE as a "basis" for talks. As per this statement, the three main southern political parties are now in a unified stance with regard to the resumption of peace talks. Therefore we believe that cohabitation between the President and the Premier at this point of time would create an excellent platform towards resuming talks with the LTTE. This could be viewed as a golden opportunity towards forming a strong unit in the south, to negotiate with the LTTE, which now demands political stability and unified leadership of government in Colombo, to kick-start the talks. We feel that the President may use the SLFP - JVP alliance as a bargaining tool at the cohabitation talks with the government, thus applying pressure on the Premier to change his stance. Furthermore if all peace related matters together with the North East security is handed back to the Prime Minister, we believe that he would be in a position to resume the peace process and continue the cohabitation with the President. Despite several shortcomings this could be envisaged as the best possible solution to the present political climax, which erupted in November last year. In such a scenario we feel that the market would gradually move into positive territory. While being optimistic on the cohabitation we do not rule out the chances of a possible election, specially after the SLFP and JVP sealed their alliance. However we strongly believe that an election at this point of time would not solve the issue. Announcement of an election at this point of time would result in a sharp decline in indices, and we believe that the ASPI would settle down around 900 levels, based on our projected earnings growth of 23.5% for 2004. However if the cohabitation talks produce positive results with the uncertainty of an election still remaining, we expect the indices to gradually move in the positive direction. We maintain the market prospective PER at 10.3x, with a target ASPI of 1381 points for 2004. However based on any further material changes to the market fundamentals we would re-evaluate our index target soon. Therefore we advise the investors to, "wait and see" the next development in the political front before looking at opportunities for bargain hunting. |
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