Sri Lankan stocks which portrayed a lethargic performance at the beginning of the week, progressively gathered momentum towards mid-week to end on a WoW gain. The week witnessed several mid-sized crossings that enhanced the daily turnovers, whilst small cap penny counters boosted the daily volumes. Institutional, high net worth and foreign interest over the week was prominent on sectors such as the Banking and Finance, Diversified, Telecommunication, Information Technology and Beverage, Food and Tobacco, of which diversified John Keells Holdings spearheaded week’s turnover adding c.29% to the week’s tally.
Renewed interest on Dialog Axiata was witnessed on Wednesday that featured a crossing of 25.6mn shares at LKR 8.80. In addition, Sampath Bank, Nations Trust Bank and Commercial Bank from the Banking Sector along with E-Channeling, Nestle Lanka, Lanka IOC and Serandib Hotels witnessed few crossings during the week. Daily average turnover for the week amounted to c. LKR 962.0mn against LKR 643.0mn recorded during the previous week.
Meanwhile, Touchwood Investments despite the pending court case and concerns over corporate governance issues extended its speculative run during this week with a total volume of c.121.0mn shares being traded with a mix of retail and high net worth interest. In addition, retail buying was witnessed on both voting and non-voting shares of Blue Diamonds (which also emerged amongst the highest traded counters during the week), Amana Takaful and Central Investments and Finance. The week recorded a total share volume of 416.0mn against 340.0mn recorded in the previous week, which is a 22.0% WoW gain.
The week saw foreign purchases amounting to LKR 1,528.7 mn whilst foreign sales amounted to LKR 876.0 mn. Market capitalisation stood at LKR 2,427.7bn and the YTD performance is 3.4%.
Conclusion: The US budget impasse and concerns over debt ceiling creates bewilderment amongst global investors
The bourse commenced the week’s activities on a negative note, however it gradually gathered points throughout the week supported by price gains witnessed in several small cap counters and selected large cap counters. Foreign participation persisted at the bourse supported by several crossings and large transactions amidst strengthening rupee and the country’s strong economic growth outlook as confirmed by the IMF and ADB. In view of that, the IMF revised the GDP forecast up for 2013E to 6.5% from 6.3%, whilst ADB retained its April projection of 6.8% and brought down the inflation estimate to 7% from 7.5%, despite revising down the region’s growth to 4.7% from 5.7%.
Meanwhile, world stock markets which were indifferent immediately after the US budget impasse and partial shutdown of the US government, slumped towards the latter part of the week on concerns that the inability to increase the US government’s debt ceiling could lead to a full scale default by the US government. Further, according to Goldman Sachs a partial shutdown of the US government could trim as much as 0.2% from GDP each week the government is closed. On top of this, the IMF indicated the necessity to raise the debt ceiling which also echoed by the US Treasury. According to US treasury, the US will run out of money to repay debts between Oct 22-October 31 if there is no raise in debt ceiling and a debt default could lead to a financial crisis as bad as 2008 or worse. It further noted that a possible failure to raise the debt ceiling could not only lead to a default on debt repayments but may also trigger shattering effects on the financial markets, private job creation, consumer spending and economic growth. These developments also could have ripple effects across the globe.
This budgetary gridlock now into its fourth consecutive day generated uncertainty and fear amongst the global investor community as to whether the recovery witnessed in the US economy would stall. However, if the time of spending freeze remains short, the impact in the US and global economy should be insignificant.
Asia Wealth management Research
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