Foreigners dominate market activity
THE market started off on a low note this week, however managed to
pick up on Wednesday (during the latter part of the day's trade), with
positive momentum continuing during the balance part of the week.
Friday saw both indices rising notably, while Week on Week (WoW) a
moderate improvement was witnessed in the indices.
The ASPI (All Share Price Index) rose by a modest 19 points or 0.99%,
closing the week at 1910.5 points, while the MPI (Milanka Price Index)
improved by 49.5 points or 2.05%, to close the week at 2460 points.
The swing in market sentiment came amid investor optimism that peace
talks may get a boost ahead of Norwegian peace envoy Eric Solheim's
scheduled visit to Sri Lanka next week.
The sentiment was also boosted after foreign interest being witnessed
on selected stocks like SLT, Dialog and JKH.
SLT saw 18.3 million shares trade this week, of which the most part
of 9.2 million shares traded on Wednesday alone.
The share price improved by 1.5% WoW to close the week at Rs. 16.25
per share, while the stock traded at high of Rs. 16.75 per share and a
low of Rs. 14.75 per share during the week. Contribution towards total
turnover was Rs. 277.8 million.
JKH was the highest contributor towards turnover, contributing Rs.
546 million, with 4.5 million of its shares trading for the week.
The major part of 3 million shares is believed to be bought by US
hedge fund Galleon on Thursday at a price of Rs. 118 per share. The
stock saw its share price fluctuate in the range of Rs. 128 and Rs.
113.25 per share for the week closing on Friday at Rs. 127.75 per share.
Foreign participation was also witnessed in mobile telecom giant
Dialog with approximately 12 million shares trading for the week.
The counter was seen trading at a high of Rs. 17.50 per share and a
low of Rs. 16 per share for the week, contributing Rs. 208 million
towards weekly turnover. WoW the share price saw a 3% improvement to
close on Friday at Rs. 17.25 per share.
Interest on LIOC remained this week with 2.1 million shares trading
for the week. Its share price dropped slightly by 0.9% WoW, closing the
week at Rs. 28.25 per share, while contributing Rs. 54.9 million towards
weekly turnover. The counter traded within the range of Rs. 28.50 and Rs.
25 per share for the week.
A notable contribution towards turnover came from Aitken Spence on
Friday, amid a foreign to foreign trade of 0.17 million shares. The
trade contributed Rs. 51 million towards weekly turnover with the
counter closing the week at Rs. 295 per share.
Turnover levels remained moderate for the week amounting to Rs. 1.5
billion. Comparing average daily turnover levels Week on Week, a 11.6%
decline was witnessed, with the daily average turnover standing at Rs.
306.3 million compared to Rs. 346.4 million recorded last week.
High foreign participation levels were witnessed this week amounting
to a sizable 64% of total activity. Foreign investors were net sellers
for the week amounting to Rs. 144.5 million.
Foreign purchase stood at Rs. 908.4 million, while foreign sales
totalled Rs. 1.05 billion for the week. The highest traded stock for the
week in terms of volume was SLT, Dialog, JKH, Royal Ceramics and Tess
Agro.
Hunt for trading opportunities in volatile market
Indices recovered most of the lost momentum during the latter part of
the week after an all party conference led by the President, endorsed
the resumption of peace talks on a priority basis.
Both indices picked up on Thursday and Friday amid optimism on some
positive development ahead of Norwegian peace envoy Erik Solheim's visit
next week.
Meanwhile some influential investors also picked large quantities for
the first time since the presidential election, and this alone was a
confidence booster for the others.
Investors await some breakthrough in peace talks during Norwegian
peace envoy's visit, which in our opinion could be somewhat an
optimistic expectation.
The venue for resuming the stalled negotiations is the prime concern
at this stage, with the Government willing to talk in an Asian country,
while the LTTE insists on Norwegian capital of Oslo.
We believe that both parties should be more flexible in order to
break the deadlock and work in a practical and workable manner that
would safeguard the ceasefire agreement.
While we reiterate our view that the investors should not engage in
panic selling after every single incident in North East, it is our
belief that much will depend on the longer-term direction of the peace
process.
Furthermore the uncertain macro environment is likely to stay in the
coming weeks with little direction available from peace front.
Thus we expect the indices to remain volatile offering trading
opportunities from time to time. We also emphasis the need to take
profits at sporadic intervals in an upbeat market, while picking up
fundamentally sound counters when they reach attractive price levels.
Policy rates unchanged at January monetary review
Central Bank held the key policy rates at this month's monetary
review after a 0.25% increase in December.
With inflation slowing down to 8% in December and aggressive open
market operations (OMO) bringing down the monetary expansion, we believe
that the decision to hold the repo rate at 8.75% is a reasonable move.
Backed by a OMO and a 1.25% rate hike during 2005, the reserve money
growth decelerated from around 20% in December 2004 to 15.8% by December
2005.
Broad money, which grew at around 20% as a result of the higher
expansion in credit to the private and public sectors, is also expected
to decelerate to some extent.
However these measures have still not factored in a possible rise in
inflation, amid an inevitable rise in domestic fuel prices. Despite the
continuous surge in global oil prices, the Government has opted to hold
the domestic fuel prices, creating a massive subsidy burden on
Government coffers.
It is understood that these subsidy amounts are yet to be paid to the
Ceypetco and Lanka IOC, but the liability continue to rise with the
subsidy accumulating further.
Rising global oil prices threaten inflation
The global oil prices have once again taken an upward turn reaching
US$67 per barrel (refer oil update elsewhere) thus in our opinion, the
authorities may have to take fast action to avoid any further disparity
in domestic fuel prices.
Such revision to fuel prices would result in cost-push inflation that
may drive the Colombo Consumer Price Index (CCPI) upwards.
If clear improvements are not seen in supply end, we expect the
demand-pull inflation also to trigger, creating a need for a further
rate hike within 2 months from the revision of fuel prices.
Trade deficit widens
Both export and import earnings recorded a modest negative growth of
3.5% and 0.8% respectively, in November 2005 compared to the
corresponding period of 2004.
Cumulative exports in the first eleven months of 2005 grew by 9.1% to
US$5,719 million, while the imports for the same period grew by 12.8% to
US$ 8,108 million in 2005. This resulted in a cumulative trade deficit
of US$ 2,389 million during the first eleven months.
Balance of Payment surplus further improves
Despite the widened trade deficit, the overall balance of payment
(BOP) position was further strengthened as the surplus improved to
US$474 million by end December 2005 due to a 24% increase in private
remittances, the benefit of the debt moratorium and purchase of the net
proceeds of foreign currency loans mobilised by the Government.
Consequently, the gross official international reserves increased
from US$2,196 million in December 2004 to US$2,518 million in November
2005.
Absence of debt moratorium to turn BOP to a deficit
Bulk of the 24% growth in foreign remittances can be attributed to a
Tsunami related inflows, which is likely to slowdown to some extent in
2006.
Furthermore it is almost certain that the debt moratorium would not
be further extended to this year, thus an additional interest burden of
around US$450 - 500 million is likely to strain the BOP position during
2006.
Furthermore the prevailing macro economic uncertainty amid the
escalating violence in the North East, would not help the investment
climate, hence we do not expect a sizeable improvement in Foreign Direct
Investments (FDIs) as well. However if the peace premise further
strengthens an increased flow of FDIs could be expected.
This information has been compiled from sources that we believe to be
reliable but we do not hold ourselves responsible for its completeness
or accuracy.
No matter published herein create any liability of any kind of HNB
Stockbrokers (Private) Limited or its associates. |