The bench mark ASI travelled upward during the first four days of the week supported by price gains witnessed across the board; however it witnessed a dip on Friday as several small cap stocks that rallied during the week lost ground. The ASI gained 109.5 points WoW to close at 5,947.4 points (+1.9%), whilst the S&P SL20 Index gained 51.8 points WoW to close at 3,283.6 points (+1.6%). Indices benefited mainly on the back of gains made by Ceylon Tobacco Company (+14.0% WoW), Commercial Leasing and Finance (+7.7% WoW), Aitken Spence Hotel Holdings (+6.1% WoW), National Development Bank (+5.4% WoW) and Lion Brewery (+4.0% WoW).
Sri Lankans stocks gained considerably during the week as majority of the stocks gathered momentum. Large cap counters strengthened the week’s activities as they remained amongst the favourite picks by institutional and foreign investors, whilst heavy retail participation that was evident on several small cap counters shouldered the benchmark index to advance.
Despite numerous crossings being recorded, activity levels during the week remained low cf. last week as mirrored by the 31.5% WoW and 35.5% WoW decline in weekly turnover and volume respectively. However, the week witnessed a net foreign inflow close to LKR1bn resulting in a WoW increase of 53%.
Meanwhile, world stock markets arose towards the end of the week over optimism that the US law makers would reach an agreement on raising the nations’ debt limit to prevent the nation from a default. But it must be noted that, even though the talks are progressing, no agreement has been reached as both parties plan to carry out further talks. Moreover, impact from the partial shut down of US government started to ripple through the economy as claims for U.S. jobless benefits jumped last week to the highest level in six months.
During the week crossings contributed c. 44% towards the week’s turnover where counters such as John Keells Holdings, Ceylon Tobacco Company, Commercial Bank, Hatton National Bank, United Motors, Access Engineering, Laugfs Gas and Lanka IOC encountered crossings. Furthermore, Touchwood, Access Engineering, Swarnamahal Finance, Asia Asset Finance and PC House topped the list in terms of highest volume traded stocks during the week.
During the week, Senkadagala Finance and Nanda Investments and Finance made announcements regarding issue of new shares via right issues.
Further, SEC issued directives regarding increase in minimum number of public shareholders required for listing on Dirisavi Board and reinstating introduction as a method of listing of equity.
The week saw foreign purchases amounting to LKR 1,297.8 mn whilst foreign sales amounted to LKR 298.1mn. Market capitalisation stood at LKR 2,473.2bn and the YTD performance is 5.4%.
Conclusion: Macroeconomic Developments Raise the Prospects of the Colombo Bourse
Both indexes recorded significant gains supported by high net worth as well as retail trading activity throughout the week. The revival of market activity and the rebound in the YTD return can be partly attributable to the macroeconomic factors which surfaced mainly at the domestic level withstanding the concerns on global economic growth. For instance, the IMF revised down the forecast for global growth to 2.9% for 2013 from the previously estimated 3.1% over concerns that growth in the developing world is showing signs of moderation. It further stated that a failure to raise the U.S. debt limit causing the latter to default on national debt may severely affect the stability of the world economy. One possible outcome of a U.S. default would be the falling price of U.S. government securities and hence the loss of foreign reserves of developing economies which utilise U.S. government debt to preserve the value of foreign reserves. The other negative factor would be the rise in the
interest rates. As mentioned in one of our previous articles, the governments as well as private companies of emerging markets took advantage of the low interest rates that prevailed in advanced economies to finance deficits and investments. A possible increase in the interest rates would hence affect the developing economies in a significant way by raising external debt financing costs of both public and private sector.
However, despite these concerns on the stability and growth prospects of the global economy and specifically that of the developing economies, the IMF raised Sri Lanka’s growth forecast for 2013 to 6.8% from 6.3% indicating the resilience shown by the economy even amidst significant global uncertainties. Further, the recovery of the rupee from the considerable pressure to fall in value against peer currencies on the back of a possible pull out by foreign investors from government securities and equities has also affected positively on the sentiment of the Colombo Bourse. This is reflected by the gains made by the ASI as well as the S&P SL20 indexes during the trading week.
Source: Asia Wealth Management Research
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