Stocks freefall amid global market meltdown

HNB Stockbrokers' weekly market review

The stocks at the Colombo bourse plummeted for the tenth straight week as the worsening global financial crisis put further pressure on already dampened market sentiment. The indices continuously fell through the week with the ASPI sliding down to settle below 2000 points by Friday for the first time since January 2006. Week on Week the ASPI (All Share Price Index) edged down sharply by 230.8 points or 10.7% to 1924.7 points while the more sensitive MPI (Milanka Price Index) closed down at 2125.4 points witnessing a much greater decline of 291.5 points or 12.1% for the week.

Leading turnover for the week came from AMW Ltd on the back of continuous accumulation of the stock by the controlling firm Al-Futtaim Engineering LLC, which had increased its stake in AMW to 95% as at the end of October 8. The total contribution by the counter during the week amounted to Rs.138.7 million and the total number of shares traded amounted to 0.8 million of which the bulk was traded on Tuesday. Meanwhile the AMW share ended the week unchanged at Rs.174.50 per share.

Speculative interest was seen on the plantation stock Maskeliya, which traded 3.4 million shares to generate a turnover of Rs.111.2 million over the week's trading. Maskeliya share traded between a large price band of Rs.24.00 and Rs.38.50 to close the week 17.5% lower at 24.75 per share. The interest on the counter was particularly seen during early part of the week where the stock was driven by speculation over a possible take over. However prices retreated later during the week after the company announced that discussions were underway of a possible divestment of the shares of its management company (RPC Management Services (Pvt) Ltd.) by its ultimate parent Richard Pieris.

Interest on the Insurance sector counter Janashakthi was witnessed as the counter managed a contribution of Rs.106.10 million by trading a total of closer to 8.9 million shares for the week. Although the counter emerged as the highest traded stock for the week with the bulk arising on Wednesday the share price dipped 10.5% WoW to close at Rs.8.50 per share on Friday.

The week also saw 0.9 million of JKH shares changing hands within a wide price range of Rs.73.50 & Rs.86.75 per share. The counter was the fourth highest contributor towards the weekly turnover, contributing Rs.70.1 million. The share slipped by a considerable 13% WoW to close Rs.11.25 lower at Rs.75.25.

Turnover for this week was considerably higher than what was witnessed last week, totaling to Rs.920.5 million. Average daily turnover for this week stood at Rs.184.1 million, showing a 73.7% growth compared to last week. Foreign investors were net buyers this week amounting to Rs.81.50 million with a foreign participation level of 20.3% of total activity. Foreign purchases for the week amounted to Rs.227.3 million while foreign sales totaled to Rs.145.8 million for the week. Foreign purchases and sales were up 43.0% and 86.4% respectively.

The highest traded stocks during the week were Janashakthi Insurance, Maskeliya, Vallibel and Dialog.

Point of View Stick to fundamentals

Market continued to suffer heavy losses as investor sentiment weakened further amidst worsening global financial crisis. All Share Price Index (ASPI) fell sharply by 10.7% while the Milanka Price Index (MPI) lost 12.1% compared to previous week's closing level.

We do not expect major change in the market sentiment over the coming week, thus negative trend is likely to continue on thin volumes. Furthermore as we saw during the week, the developments that take place in the global equity markets would also influence the performance of Colombo Bourse.

Thus we advise investors to closely monitor the global market performance while sticking to fundamentally sound counters that have fallen to attractive levels as a result of recent market fall.

Are foreign investors really selling?

Colombo Stock Market lost more than 20% over the last 3 months, raising concerns on whether foreign investors are selling off Sri Lankan equities in the back of global market meltdown. However a careful analysis done by us indicates that the foreign investors were net buyers over the last 3 months amounting to Rs.641 million. We have excluded strategic foreign buying on Associated Motorways (AMW) during this period in order to get a clear picture of the foreign activity.

* Foreign purchases are excluding foreign buying on AMW from 28th July 2008 Overall, the foreigners remained net buyers though there was marginal net foreign selling during the last 2 months. Nevertheless considering the reversal of net foreign activity pattern over the last 2 months, we do not rule out the possibilities of higher foreign selling in the coming weeks/ months if the international market continues to tumble.

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