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By Asia Wealth Management Research Team
Dec 10, 2011 (LBT) -Despite volatilities witnessed during trading, both indices closed relatively flat with a Week over Week variance being negligible.
ASI shed heavily, but regained nearing its support level of 6000 points.
We further observed that heavy trading took place on fundamentally sound counters proving that institutions were not inactive but silently adapting a strategy of accumulating fundamentally sound stocks at prevailing discounted prices, until the market settles back and move to a positive territory.
And also on the other hand we observed that retail investors are struggling with their investments made on speculative counters.
On a separate note, we still see the market reacting towards factors that doesn’t hold a correlation to market performance, the talk over changing senior positions in the SEC is a fine example to this.
Therefore, we believe that time is ripe for investors to deviate from the current mentality and focus on fundamentally strong counters with a strong backing by performance.
Market activities on a narrow band
The Colombo Bourse predominantly remained in the red during the week as opposed to the upward run witnessed in the first week of December.
The All Share Index shed 91.4 points WoW to close at 5996.4 points (-1.5%) while the Milanka Price Index on liquid counters also lost 15.5 points WoW to close at 5231.1 points (-0.3%).
The major counters that contributed to this decline include; Sri Lanka Telecom (-3.6% WoW) followed by Lanka Orix Leasing Company (-5.4% WoW), Expo Lanka Holdings (-8.4% WoW), Walk and Greig (-9.1% WoW) and Vallibal One Limited (-
5.4% WoW).
The market demonstrated an erratic behavior while the retail investors remained cautious. Counters across the board fell off the track reporting low activity levels and turnovers. Both ASI and MPI dropped mainly due to drastic dips in the Banking Finance Insurance and Hotel sector indices by 240.9 points (WoW) and 100 points respectively.
Furthermore former MP and businessmen Tilak Karunarathne assumed duties as the new chairman of the Securities and Exchange Commission (SEC). On the new appointment investors expected it to create a positive implication although the market remained on a low profile.
Meanwhile low valued counters were witnessed as the most sought after, with institutional and high net worth interest on selected blue chips such as Hatton National Bank, Distrilleries Company of Sri Lanka and Sampath Bank.
Heavy Weight John keells holdings led the week’s turnover contributing circa 21%. In addition transactions during the week witnessed 2.8mn shares of Hatton National Bank changing hand at a price of LKR145.
Aitken Spence Hotels Holdings witnessed active local high net worth interest during the week where the counter witnessed a parcel of 1.6mn shares crossed off at LKR66.Similar interest was witnessed in Distrilleries Company of Srilanka where the counter witnessed 3 crossings cumulative 860K shares at a price of LKR150.
The market recorded an average daily turnover of LKR833.5mn over the week, together with an average volume of circa 131.1mn.
Dialog Axiata emerged as the top volume traded counter showing heavy popularity among retailers, followed by Expo Lanka Holdings, Orient Garments and Seylan Merchant Bank (W15).
Foreign Participation witnessed an outflow of LKR527.6mn where foreign purchases amounted to LKR343.8mn whilst foreign sales amounted to LKR871.4mn.
Sri Lanka’s Real Capital Expansion and Future of Equity Trade
The negative sentiment flaring Sri Lanka’s stock exchange activity is repeatedly taken into discussion by a broad spectrum of influential circles including financial analysts, investors, regulators, politicians and not to mention the attentive layer of the general public.
In this concise inquiry we intend examining conditions pertaining to capital expansion in Sri Lanka’s real economy that could possibly bear very significant impact on stock trading activities.
We’re of the view that Sri Lanka’s All Share Index is set to witness a gradual rise persisting for a considerable time span on the back of expanding large scale stock trading activities in near future.
It’s our view that this leap in high net worth and institutional trading levels will occur as a result of few peculiar conditions occupying the capital structure of post war Sri Lankan economy.
In this regard we will endeavour to demonstrate a correlation between the structure of capital expansion spearheaded following the end of ethnic war in mid 2009 and the specific stage of expansion which it has currently reached or is about to reach and the impact it could bear on the ‘virtual’ sphere of the economy.
It’s clearly observable that the private sector fixed capital expansion following the end of civil war is largely cantered on tourism in general, apart from the petty agricultural activities sprouted in North and East of the country.
In this setting, we should discern the capacity for private fixed capital to place itself on a self expanding path of progress.
Hence, we shall briefly elaborate the nature of relationship which domestic factors of production have established with the backward and forward linkages of post-war capital investments. For instance, the manufactured articles required as fixed and working capital inputs of tourism such as cloth, china products, home appliances, kitchen appliances etc., are all imported rather than being domestically produced by private ventures.
This phenomenon has a potential for scaling down the rate of expansion of aggregate private capital, restricting the latter to investments in merely setting up the hotel structures sans exploiting the investment opportunities of the backward and forward linkages pertaining to tourism.
For instance, to produce an electric bulb fixed in a tourist resort, resources should be productively arranged to produce many other subsidiary inputs such as filaments, globes, wires & stem, the base, etc.
To produce these subsidiary inputs scores of other secondary devices should be made in turn, creating a chain reaction of investments, placing the whole process of capital expansion drive on a massive self expansionary phase which seeks no end to itself.
Economies of China, South Korea, Malaysia, Singapore, Taiwan, etc., are experiencing more than four decades of relentless capital expansion and economic growth and are continuing to do so even amidst difficult global economic conditions as their investment patterns have sort to arrange the allocation and arrangement of resources in line with the above mentioned capital structure.
However, it appears that the free interplay of market forces in Sri Lanka has not been able to direct the employment of resources in this specific direction. If an economy sorts to import rather than domestically produce these inputs for herself the self expanding propensity of capital is weakened and thereby the wave length of a specific development drive is curtailed.
It contributes to a weakening of the multiplier effect of initial investments (such as
tourism) on the economy for since a higher number of leakages are being extended rather than injections. This could even lead to a negative multiplier deteriorating country’s external payments position and weakening the economy’s aptitude to expand employment.
These distinct characteristics of Sri Lanka’s post-war capital formation, suggests that the post-war investment drive of private sector now stepping into its second consecutive year is set to gradually decelerate and companies that have expanded their capital base specifically in tourism will now thrive to breakeven and start generating a cash inflow through these net additions to its capital base rather than keep on expanding the accommodation capacity.
The impact this could bear on Sri Lanka’s stock trading activity is somewhat interesting when closely observed. It suggests that the conglomerates will now sort to gradually re-channel their surplus funds from real economic activity toward financial instruments, increasing the net volume of large trades in the equity market.
http://lbt.lk/stock-market/movement/874-lbt-markets-weekly-report
Dec 10, 2011 (LBT) -Despite volatilities witnessed during trading, both indices closed relatively flat with a Week over Week variance being negligible.
ASI shed heavily, but regained nearing its support level of 6000 points.
We further observed that heavy trading took place on fundamentally sound counters proving that institutions were not inactive but silently adapting a strategy of accumulating fundamentally sound stocks at prevailing discounted prices, until the market settles back and move to a positive territory.
And also on the other hand we observed that retail investors are struggling with their investments made on speculative counters.
On a separate note, we still see the market reacting towards factors that doesn’t hold a correlation to market performance, the talk over changing senior positions in the SEC is a fine example to this.
Therefore, we believe that time is ripe for investors to deviate from the current mentality and focus on fundamentally strong counters with a strong backing by performance.
Market activities on a narrow band
The Colombo Bourse predominantly remained in the red during the week as opposed to the upward run witnessed in the first week of December.
The All Share Index shed 91.4 points WoW to close at 5996.4 points (-1.5%) while the Milanka Price Index on liquid counters also lost 15.5 points WoW to close at 5231.1 points (-0.3%).
The major counters that contributed to this decline include; Sri Lanka Telecom (-3.6% WoW) followed by Lanka Orix Leasing Company (-5.4% WoW), Expo Lanka Holdings (-8.4% WoW), Walk and Greig (-9.1% WoW) and Vallibal One Limited (-
5.4% WoW).
The market demonstrated an erratic behavior while the retail investors remained cautious. Counters across the board fell off the track reporting low activity levels and turnovers. Both ASI and MPI dropped mainly due to drastic dips in the Banking Finance Insurance and Hotel sector indices by 240.9 points (WoW) and 100 points respectively.
Furthermore former MP and businessmen Tilak Karunarathne assumed duties as the new chairman of the Securities and Exchange Commission (SEC). On the new appointment investors expected it to create a positive implication although the market remained on a low profile.
Meanwhile low valued counters were witnessed as the most sought after, with institutional and high net worth interest on selected blue chips such as Hatton National Bank, Distrilleries Company of Sri Lanka and Sampath Bank.
Heavy Weight John keells holdings led the week’s turnover contributing circa 21%. In addition transactions during the week witnessed 2.8mn shares of Hatton National Bank changing hand at a price of LKR145.
Aitken Spence Hotels Holdings witnessed active local high net worth interest during the week where the counter witnessed a parcel of 1.6mn shares crossed off at LKR66.Similar interest was witnessed in Distrilleries Company of Srilanka where the counter witnessed 3 crossings cumulative 860K shares at a price of LKR150.
The market recorded an average daily turnover of LKR833.5mn over the week, together with an average volume of circa 131.1mn.
Dialog Axiata emerged as the top volume traded counter showing heavy popularity among retailers, followed by Expo Lanka Holdings, Orient Garments and Seylan Merchant Bank (W15).
Foreign Participation witnessed an outflow of LKR527.6mn where foreign purchases amounted to LKR343.8mn whilst foreign sales amounted to LKR871.4mn.
Sri Lanka’s Real Capital Expansion and Future of Equity Trade
The negative sentiment flaring Sri Lanka’s stock exchange activity is repeatedly taken into discussion by a broad spectrum of influential circles including financial analysts, investors, regulators, politicians and not to mention the attentive layer of the general public.
In this concise inquiry we intend examining conditions pertaining to capital expansion in Sri Lanka’s real economy that could possibly bear very significant impact on stock trading activities.
We’re of the view that Sri Lanka’s All Share Index is set to witness a gradual rise persisting for a considerable time span on the back of expanding large scale stock trading activities in near future.
It’s our view that this leap in high net worth and institutional trading levels will occur as a result of few peculiar conditions occupying the capital structure of post war Sri Lankan economy.
In this regard we will endeavour to demonstrate a correlation between the structure of capital expansion spearheaded following the end of ethnic war in mid 2009 and the specific stage of expansion which it has currently reached or is about to reach and the impact it could bear on the ‘virtual’ sphere of the economy.
It’s clearly observable that the private sector fixed capital expansion following the end of civil war is largely cantered on tourism in general, apart from the petty agricultural activities sprouted in North and East of the country.
In this setting, we should discern the capacity for private fixed capital to place itself on a self expanding path of progress.
Hence, we shall briefly elaborate the nature of relationship which domestic factors of production have established with the backward and forward linkages of post-war capital investments. For instance, the manufactured articles required as fixed and working capital inputs of tourism such as cloth, china products, home appliances, kitchen appliances etc., are all imported rather than being domestically produced by private ventures.
This phenomenon has a potential for scaling down the rate of expansion of aggregate private capital, restricting the latter to investments in merely setting up the hotel structures sans exploiting the investment opportunities of the backward and forward linkages pertaining to tourism.
For instance, to produce an electric bulb fixed in a tourist resort, resources should be productively arranged to produce many other subsidiary inputs such as filaments, globes, wires & stem, the base, etc.
To produce these subsidiary inputs scores of other secondary devices should be made in turn, creating a chain reaction of investments, placing the whole process of capital expansion drive on a massive self expansionary phase which seeks no end to itself.
Economies of China, South Korea, Malaysia, Singapore, Taiwan, etc., are experiencing more than four decades of relentless capital expansion and economic growth and are continuing to do so even amidst difficult global economic conditions as their investment patterns have sort to arrange the allocation and arrangement of resources in line with the above mentioned capital structure.
However, it appears that the free interplay of market forces in Sri Lanka has not been able to direct the employment of resources in this specific direction. If an economy sorts to import rather than domestically produce these inputs for herself the self expanding propensity of capital is weakened and thereby the wave length of a specific development drive is curtailed.
It contributes to a weakening of the multiplier effect of initial investments (such as
tourism) on the economy for since a higher number of leakages are being extended rather than injections. This could even lead to a negative multiplier deteriorating country’s external payments position and weakening the economy’s aptitude to expand employment.
These distinct characteristics of Sri Lanka’s post-war capital formation, suggests that the post-war investment drive of private sector now stepping into its second consecutive year is set to gradually decelerate and companies that have expanded their capital base specifically in tourism will now thrive to breakeven and start generating a cash inflow through these net additions to its capital base rather than keep on expanding the accommodation capacity.
The impact this could bear on Sri Lanka’s stock trading activity is somewhat interesting when closely observed. It suggests that the conglomerates will now sort to gradually re-channel their surplus funds from real economic activity toward financial instruments, increasing the net volume of large trades in the equity market.
http://lbt.lk/stock-market/movement/874-lbt-markets-weekly-report
