Market set to consolidate this year

Markets closed with week-on-week gains, as the ASPI gained 91.84 points (1.54%) and the MPI gained 39.30 points (0.76%). The ASPI closed at 6074.42 and the MPI closed at 5229.16 points.

Weekly turnover value during the week was dominated by Commercial Bank of Ceylon Plc amid large crossings; the counter accounted for 45.17% of total market turnover.

Tess Agro and Environmental Resources Investments Plc together accounted for 7.78% of turnover. Weekly turnover value for the week however declined 1.62%to Rs 2.75bn compared to last week ‘s value of 2.80bn, averaging Rs 687.52mn.

The weekly turnover value was dominated by the Banking and Finance sector which accounted for 56.69% or Rs 1558.95mn of total market turnover.

The Manufacturing sector contributed 6.98% to amount to Rs 192.02mn, while the trading sector accounted for 5.86% or Rs 161.28mn. Turnover volumes for the week were yet again led by the Banking and Finance sector which accounted for 27.12% (or 33.67mn) shares being traded.

The Trading sector accounted for 22.72% or 28.21mn shares while 15.38mn shares (12.39%) in the Manufacturing sector changed hands. Market Capitalization increased by 1.54% over the week to close at Rs 2213.87bn relative to last week ‘s value of Rs 2180.38bn. Equity Two Plc topped the price gainers list, rising 21.99%to close at Rs 29.40 compared to last week ‘s closing price of Rs 24.10. Agalawatte Plantations Plc gained 19.42% to close at Rs 49.80, while Lankem Ceylon Plc closed at Rs 260, representing a 15.97% gain.

Tess Agro and Talawakelle Plantations Ltd were also amongst the top price gainers for the week, recording gains of 15.38% and 14.23% respectively.

The highest price drop for the week was recorded by Industrial Asphalts which lost 15.28% to close at Rs 500.30 from last week ‘s close of Rs 590.50. Union Assurance Plc declined 12.04% to close at Rs 108.10 and Metropolitan Resource Holdings Plc closed at Rs 23.70 (a decline of 10.57%).

Foreign sales outweighed foreign purchases over the week, with the net sales position for the week totaling Rs 1.26bn relative to last week’s net buying position of Rs 517.91. Total Foreign purchases declined 89.74% to Rs 93.09mn. Total Foreign sales, in contrast, recorded a significant increase of over 200.00% to Rs 1.35bn, averaging Rs 338.22mn over the week.

Tess Agro topped the volume list accounting for 22.12% (or 27.47mn shares)of the week’s aggregate share volume. Commercial Bank of Ceylon Plc contributed 10.17% of the total share volume as 12.62mn shares changed hands over the week.

Point of view

Markets closed the year on a muted note with the benchmark ASPI closing marginally above 6000 and volumes dwindling progressively over the week.

Despite the recent negative sentiment surrounding volume and foreign outflows, the CSE has in fact remained broadly in line with 2010.

Average volume in 2011 was 2.3bn, marginally lower than 2.4bn in 2010. The net foreign position of the CSE meanwhile -albeit a net sales position - is nonetheless a 42% decrease from the net sales position in 2010.

We maintain our view that the recent market re-rating is justified and believe that the declines in volume indicate a bottoming-out of the speculative trading trend which dominated much of 2011.

We expect markets to be more fundamentals-driven in 2012 as markets consolidate its post-war boom position.

Nevertheless, we advise that macro-fundamentals such as interest rates and FX rates be monitored closely as these will undoubtedly impact equity markets in the year ahead.