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Healthy political development shoves market steadily

STOCK MARKET The main opposition party the UNP, signed a Memorandum of Understanding (MOU) with the ruling SLFP on Monday, extending their corporation on 6 key issues after weeks of negotiations.

This unprecedented alliance between the two parties saw the market rising notably as investors welcomed the newly formed union as heralding a new era in Sri Lankan politics.

The ASPI (All share Price Index) and the MPI (Milanka Price Index) rose by a similar 1.3% on Monday, while on absolute terms, the ASPI growth was 32 points while the MPI increased by 40.3 points.

However the initial hype seen on Monday did not retain as profit taking combined with cautious sentiments on the peace talks which are set to go through during the weekend saw listless movement during the balance part of the week.

Week on Week (WoW) the ASPI was up by 31.6 points to close at 2503.2 points, while the MPI rose by 49.6 points closing on Friday at 3199.4 points. This week however was restricted to 4 trading days with Tuesday being a holiday.

Blue chip JKH was the highest contributor towards daily turnover this week, contributing Rs.677.3 million. The share price of JKH rose by 3.5% compared to last week to close the week at Rs.149.25 per share.

During the week however, the counter managed to hit a high for the week of Rs.150 per share. Sizable foreign selling was witnessed in the counter, while a total of 4.5 million shares traded for the week.

Meanwhile JKH quarterly results were released on Thursday, with PAT for the 2nd quarter showing a slight decline.

Touchwood managed to fulfill investor expectations this week, with the company announcing a 2 for 1 bonus subject to shareholder approval. The counter traded at high of Rs.178 per share before the announcement on

Wednesday, however prices fell subsequently with the share price touching a low of Rs.153 per share on Thursday.

The counter closed the week at Rs.159.25 per share down by 4.6% WoW. Approximately 1.4 million touchwood shares traded this week, while the counter became the second highest contributor towards revenue contributing Rs.233.5 million.

Wireless telecom giant Dialog put out their quarterly results this week, showing a significant 47% growth in profitability for the 3rd quarter.

However the share price showed little reaction to the growth in profitability with the WoW movement in share price being a mere 2.3%. The counter close the week at Rs.22.25 per share while within the week the share managed to trade between a tight range of Rs.22.50 and Rs.21.75 per share.

The counter managed to contribute Rs.97.4 million towards weekly turnover, while 4.4 million shares traded for the week.

Meanwhile SLT saw reduced interest this week with the counter managing to contribute a modest Rs.97.4 million compared to last week's contribution of Rs.238.7 million.

The share price of the counter fell by 1.6% this week to close at Rs.23.25 per share, while conversely, the share price rose by 6.8% last week.

SLT saw 3.8 million shares exchange hands this week, while trading at a high of Rs.24 and a low of Rs.23 per share for the week Total turnover this week was lower compared to last week, amounting to Rs.1.9 billion, with activity being partly hampered by the week being limited to 4 trading days.

However comparing the average daily turnover WoW which should exclude the effect of the reduction in trading days, still turnover showed a decline of 17.9% for the week.

Average daily turnover this week amounted to Rs.484.5 million.

Foreign investors were net sellers for the week amounting to Rs.295.7 million. The higher foreign sales came mainly from JKH, while standing at Rs.634.6 million for the week.

Meanwhile foreign purchases for the week amounted to Rs.338.9 million. Foreign participation fell to 25.6% of total activity this week, compared to 30.4% posted during last week. Vallibel, JKH, Dialog, Nawaloka and SLT were among the highest traded stocks in terms of volume for the week.

Market gained during the week amid the signing of the much-awaited Memorandum of Understanding (MoU) between the Sri Lanka Freedom Party (SLFP) and the United National Party (UNP) on Monday.

The activity levels also showed a significant improvement compared to last week with increased participation from the retail investors. During the week All Share Price Index (ASPI) increased by 1.28% compared to last week's closing levels. Crucial round of talks in Geneva.

The government and LTTE delegations will meet in Geneva on October. 28-29 for their first high-level peace talks in eight months. We expect both parties will use these talks as a platform to build the lost confidence after the breakdown in talks in February this year.

Whilst we do not expect the peace talks to be a complete failure, we also do not expect the two parties to agree on a permanent solution for the conflict during the weekend talks.

However there is no doubt that the investor confidence would get a boost if the two parties could agree on an agenda and a date to carry forward the talks to the next level.

With the signing of the MOU between the SLFP and the UNP, both parties have agreed to work together in arriving at a proposal to stop the ongoing conflict in the north and east parts of the Country.

We believe that a proposal arrived by these two parties is likely to be passed in parliament as they control 2/3 of the votes in parliament.

Therefore, we believe the government is now in a stronger position to offer a reasonable proposal to the LTTE in terms of devolution of power, which is a critical factor for successful negotiations.

We feel that the next week's market sentiment would largely depend on the outcome of the Geneva talks. Thus we advise investors to keep a close eye on the weekend's discussions between the LTTE and Government.

Meanwhile with more corporate results expected to be released in the next few weeks' investors should collect stocks that are likely to come up with strong financial results.

We expect banking sector stocks such as Commercial Bank and HNB to have performed well during the first nine months this year.

Apart from the banking sector stocks, we expect companies such as SLT, Distilleries and Hayleys also to record better results for the period ended 30 September 2006 compared to the corresponding period last year.

All opinions views findings and conclusions included in this report constitute our judgment of this date and are subject to change without notice.

"HNB Stockbrokers (Private) Limited has the sole copyright for this report and the informationand views contained cannot be reproduced or quoted in part or whole in any form whatsoever without the written permission from HNB Stockbrokers (Private) Limited.

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