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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Sri Lanka stocks still seen over-priced

Sri Lanka stocks still seen over-priced

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1Sri Lanka stocks still seen over-priced Empty Sri Lanka stocks still seen over-priced Wed Sep 07, 2011 11:04 am

Gaja


Associate Director - Equity Analytics
Associate Director - Equity Analytics
http://www.lbo.lk/fullstory.php?nid=466185545

Sri Lanka's stock market is still comparatively over-priced despite coming off record highs that made it Asia's best performing bourse after the end of the island's ethnic war, an analyst said.

"I can't help but wonder whether the peace dividend has resulted in the market being over priced and whether it is a bubble waiting to burst," said Ravi Abeysuriya, chief executive of Heraymila Securities. "No market can give earnings like this."
The Colombo Stock Exchange's price-to-earnings multiple has come down to 19 times after the regulator, the Securities and Exchange Commission (SEC), restricted buying on credit and imposed price bands to curb volatility, he said.

The emerging market index for markets like India, China and Brazil, as now 13 times while the frontier market PE ratio was 10 times, Abeysuriya, a former SEC commissioner, told the 8th LBR LBO CFO FORUM Tuesday.

It was held on the theme 'CSE: A Blood Bath or a Gold Mine' at the Ceylon Continental Hotel attended by a large gathering of corporate executives.

"Timely action by the SEC prevented a blood bath like in Bangladesh," Abeysuriya said.

"But Sri Lanka stills stands out at a PE of 19 times. So our market is still relatively over-priced," he said.

"In the medium to long term I believe Sri Lanka can become a gold mine because we see robust company earnings and higher growth."

The island's strategic location next to India, seen as a key growth centre in Asia, to which economic activity is shifting, is also an advantage.

"We know there's a shift in wealth to the East. Like what Hong Kong is to China, Sri Lanka can become the gateway to India. We are located strategically - we have an advantage."

Other countries that recovered from lengthy civil wars also showed high growth rates, Abeysuriya said, noting that Sri Lanka has potential to generate double-digit growth because of strong growth even during the ethnic war.

The number of firms listed on the stock exchange will also grow with many companies, including government-owned ones, making use of the bourse to raise funds.

"More savers will consider the CSE because bank savings accounts now give very low returns."

But Abeysuriya said the CSE needs reforms and development.

"There's a need to promote investor confidence with ethical practices that instil public trust in the market," Abeysuriya said. "We need robust regulatory standards to protect investors and advocate fair play.

"Some of the policy changes that we will see soon such as the stipulated minimum public float as a continuing listing requirement, which will generate more liquidity, will prevent a lot of the current malpractices now happening because of the lack of liquidity," he said.

Amendments to the Securities and Exchange Commission law will also bring in civil sanctions for those who artificially manipulate the stock market.

The changes will facilitate growth of institutional investors like unit trusts or mutual funds, Abeysuriya said.

UKboy

UKboy
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Who is this Ravi Abeysuriya? Looks like a well balanced statement from a broker firm which is extremely rare to find nowadays.

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
"CSE: A Blood Bath or a Gold Mine"

There are shares that can make it a blood bath. And there are shares which can make it a gold mine. Which ones would you pick?

"But Sri Lanka stills stands out at a PE of 19 times. So our market is still relatively over-priced,"

Overall market forward PE can be lesser than 19 now. PE is still relatively high due to over some over priced
sectors ( Hotel , IT for example) and some shares trading at absurd prices still.

But for the wise and patient this market has plenty of opportunities. I still see shares trading with PE of 5-10.

seyon


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@slstock wrote:"CSE: A Blood Bath or a Gold Mine"

There are shares that can make it a blood bath. And there are shares which can make it a gold mine. Which ones would you pick?

"But Sri Lanka stills stands out at a PE of 19 times. So our market is still relatively over-priced,"

Overall market forward PE can be lesser than 19 now. PE is still relatively high due to over some over priced
sectors ( Hotel , IT for example) and some shares trading at absurd prices still.

But for the wise and patient this market has plenty of opportunities. I still see shares trading with PE of 5-10.

Agreed slstock, Further u can add some stocks ( specially finance companies) through introduction, which is also one the reason mkt to trading @ high PE ( Just have look of these financial MFL, NAFL, CCOR, LOFC, etc...,)

As he said there are gold mine for the medium and long term, this mkt is attractive for me to collect gold mine @ bargain price, My fear still the mkt is on the speculative counters, sometime investors (even we also) getting stuck at high prices, if go behind the speculative counters. Still there may be possibility prices of some good picks to come down.

slstock What do u think is it the correct time to enter for the gold mines or will have to wait for some time.

cse.alpha


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@UKboy wrote:Who is this Ravi Abeysuriya?

Ravi was earlier head of Fitch Lanka and AMBA Research, and previously on SEC Board.

Stock selection is what really matters though, not worrying about overall market PERs.

But Ravi's firm Heraymila Securities (former Amana) is not very good at generating good stock ideas I think - their top picks in April 2011 were ACL, HHL and SAMP, none of which have given good returns lately Wink

http://www.ft.lk/2011/04/11/hemas-sampath-acl-cables-in-heraymila-securities-first-conviction-list/

lokuayya


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Yes this is very plain and usual complain when fund managers fail to gain while others gain from investing and trading in unconventional ways.
Those who stick to low P/e based investment decisions failed miserably this year.This does not mean they are totally wrong.They will also have their turn after sometime and their theories will work.


upuln

upuln
Equity Analytic
Equity Analytic
http://www.vimasuma.com/index.php?option=com_content&view=article&id=3131&Itemid=56

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