MARKETS

Sri Lanka Rupee strengthens against US $

Market Review :

Markets declined significantly over the four-day trading week with the ASPI losing 266.88 points week-on-week and the MPI losing 204.59 points. The ASPI closed at 5108.56 points, down 4.96%, while the MPI closed at 4610.86 points to represent a week-on-week decline of 4.25%.

JKH generated the highest turnover value this week, adding Rs 251.62 million (or 14.60% of total market turnover) to the market. United Motors and Commercial Bank together meanwhile, contributed 13.61% or Rs.234.57 million to total market turnover. Market turnover value for the week amounted to Rs 1.72 billion, averaging Rs 430.83 million relative to last week’s daily average of Rs 496.14 million, representing a 13.16% decline. Market capitalization meanwhile declined by 4.96% over the week to Rs 1901.42 billion from Rs 2000.69 billion last week’s.

On a sectoral basis, the highest contributor to weekly turnover value stemmed from the Banking and Finance sector which contributed 28.89% or Rs 497.95 million to the market. The Diversified sector was the second largest contributor to the market, adding Rs. 354.85 million (or 20.59%) to the total market. Trading in the United Motors counter meanwhile helped the Motors sector account for 8.76% (or Rs 150.98 million) of total turnover value. In terms of turnover volumes traded, the Banking and Finance sector accounted for the highest number of shares being traded (37.90%) as 41.13 million shares traded over the week.

The Manufacturing sector contributed 18.14% or 19.69 million shares to the market, while the Diversified sector was also among the top contributors as 8.91 million shares (8.21%) changed hands over the week.

Harischandra Mills Plc was the highest price gainer during the week, closing at Rs 2500.00 to represent a 51.04% gain from last week’s close of Rs 1655.20. Royal Palms Beach Hotel Plc gained 13.11% to close at Rs 50.90 while Softlogic Finance Plc closed at Rs 31.70 as it gained 5.67% over the week.

Also amongst the week’s top price gainers were Ceylinco Insurance (NV) (up 5.02% week-on-week) and Asiri Central (up 4.60% week-on-week). The top price loser for the week was Colombo Fort Investment Ltd which lost 37.19% to close at Rs 140.20 relative to last week’s Rs 223.20. Blue Diamonds [NV] meanwhile declined of 34.62% to close at Rs 1.70 while Acme Printing and Packaging Plc lost 30.59% to close the week at Rs 11.80.

Point of view

Markets remained bearish yet again this week as controversy surrounding state-bank NSB’s purchase of TFC shares further clouded investor sentiment. The main index lost 187 points over the week while average turnover levels hovered just below Rs 0.5 billion. The net foreign position on the bourse nevertheless remained positive for the 9th consecutive week, with inflows rising over 400.0% week-on-week despite the Sri Lanka Rupee strengthening 0.85% (against the US $) over the week.

Sluggish market sentiment however, is likely to dominate the week ahead. The Central Bank (CB) meanwhile retained its key policy rates (Repo rate at 7.75% and Reverse Repo at 9.75%), citing its expectations that both monetary aggregates and imports should decelerate during 2012 amid the policy measures its implemented thus far to moderate the expansion of credit growth and the trade deficit.

The CB added that while the start of the year has remained challenging for country’s external position, it expects a turnaround as FDI inflows of US $ 2.0 billion along with stronger tourism earnings and worker remittances, and increased government and private inflows boost the country’s external reserve position.

Acuity Stockbrokers Research

JPMorgan faces new scrutiny after $ 2 b loss

One of the pillars of Wall Street -- bank JPMorgan Chase -- faced new scrutiny Saturday after it reported a shocking $ 2 billion derivatives loss that even its pugnacious chief executive called “egregious.” “It ought to be a concern to the SEC. They are the ones who ought to have a concern about that,” said Senator Carl Levin, referring to the Securities and Exchange Commission, the government's top financial regulator.

“The SEC should surely take a look at it.” added the Democratic lawmaker, who heads the Senate's Permanent Subcommittee on Investigations.

According to The New York Times, the SEC was already on the case.

The inquiry, which is being run out of New York, will probably examine the bank's past regulatory filings about the internal unit that placed the trades, as well as recent statements from the firm's top executives, the paper said, citing unnamed people “briefed on the matter.” The huge New York-based bank sent shivers through the markets with the loss, after having convinced many that a well-managed bank could manage the risks of complex derivatives that lay behind the 2008 financial crisis.

Politicians called for tightening bank regulation and tough controls on hedging activities, and a Republican senator requested a hearing into the case.

“Are we confident that taxpayers are fully protected from losses at major financial institutions?” asked Senator Bob Corker in a letter to the Senate Banking Committee head.

JPMorgan CEO Jamie Dimon revealed the losses late Thursday in an unscheduled call to analysts, saying they were incurred in the last six weeks by the New York bank's risk management unit, the Chief Investment Office.

They involved trading in credit default swaps usually meant to offset other risks in the bank's investments, but Dimon said the strategy “morphed” into trading that was overly complex, poorly executed and badly overseen.

“These were egregious mistakes,” Dimon said. “They were self-inflicted and... this is not how we want to run a business.” Although he said the bank was still very profitable, Dimon also acknowledged the positions could possibly lead to another $1 billion in trading losses by the end of this quarter.

“Hopefully by the end of the year... this won't be a significant item for us,” he said. Investors made their displeasure brazenly apparent, savaging the bank's shares from the start of Friday's trading.

The firm's stock closed down 9.3 percent at $36.96, wiping around $14 billion off the market value of the country's largest bank.

AFP