Tea rejuvenating stock market
Sri Lanka's stock market is recovering thanks to an unlikely tonic -
tea. High international tea prices are boosting interest in Sri Lanka's
tea and rubber plantation sector shares, which have helped reverse the
stock market's 7 percent drop in January.
With investors betting on strong quarterly results for the sector,
Colombo's leading All-Share index has clawed back its losses this year
and analysts say tea plantation share gains could help drive the broader
market back into positive territory. For the year to date, the
plantation sector sub-index is up more than 21 percent.
"Because of high expectations of strong earnings in plantation
shares, small investors are highly attracted," said Vajira Premawardhana,
head of research at Lanka Orix Securities.
"Corporate earnings of some main blue chips are not up to the
expected level. So now most investors want to recover their losses (in
other shares) from plantation shares." Sri Lanka's Tea Board said last
month that despite a 2 percent drop in 2007 production, the country
earned a record $1 billion from tea exports, helped by high global
prices.
Tea is a major foreign exchange earner along with remittances and
garments. The Tea Board said average tea prices at auction in Colombo
rose more than 40 percent last year to $2.74 per kilogram. Rubber prices
also rose 15-35 percent, depending on the type of rubber exported,
though exports are much smaller than tea.
Sri Lanka was the world's No.3 tea producer after China and India in
2006, but the leading exporter, according to Tea Board data.
Three plantation companies which have announced quarterly earnings
this month have reported strong profits, fuelling interest in other
plantation shares. The sector has accounted for nearly half of all
bourse turnover for a week.
Kotagala Plantation posted a 57 percent jump in nine-month net
profit, Talawakelle Tea Estates said its 2007 net profit grew 24
percent, and Kelani Valley Plantation increased its 2007 net profit by
62 percent. Fifteen more plantation sector shares are set to release
their earnings by the end of the month.
"High profits are mainly because of high global tea and rubber
prices," said Dharshi Ganeshan, a research analyst at Bartleets Mallory
Stockbrokers. Plantation shares are minnows in terms of market
capitalisation but, unaffected by a new phase in a 25-year civil war,
they have shone compared to blue chip stocks such as top mobile operator
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