Stock Market The Forbes ABN AMRO Business Roundup
For the trading week ended Friday 14th of January 2000- Downward trend continues
- Positive for market.
- Inflation moving downPlantation sector
Downward trend continues; Selling pressure on bluechips continued to weigh down the market indices & was reflected by a 2% decrease in the MPI closing at 891.6. The overall market benchmark ASPI resonated these negative sentiments resulting a 1-% decline to close at 891.5. However plantations & diversifies were observed to hold ground resulting minimal downward pressure on prices. We believe this to be mainly due to the revival of commodity prices and expectations of definite yoy turnarounds in year 2000 earnings for stocks with exposure to the plantation sector. Continuing on this relatively positive note market activity registered a significant improvement from last week, registering a 122% increase in average daily turnover levels, but still at a measly Rs. 33m. Foreign activity levels also registered an improvement but selling pressure from this segment resulted in a Rs. 73m outflow, which accounted to 37% of total turnover. Thalawakelle plantations commenced trading on Wednesday at an IPO price of Rs. 10.00 & closed at Rs. 16.75 at the end of trading.
Positive for market. 1999 inflation recorded an extreme low at 4.79%, a level not seen since 1995. We have recently revised our forecasts to show an increase to 5.9% and 6% in the next two years given the general improvement in economic activity and higher fuel prices. This low inflation rate coupled with an expected 5.5% real rate means interest rates should be around 11%. Interest rates are at 12.8% currently, and need to correct by at least 100- 180bp this year to take into account the marked reduction in prices. This adds another feather to our bullish stance on the stock market.
Inflation moving down. 1999’s full year inflation rate is almost a 50% drop from 1998’s 9.5%. This is mainly due to the decline in key sub indices. Inflation in the food sub index declined to 4.1% in 1999 from 11.1% in 1998 and the fuel and light sub index saw a reduction to 1.5% from 3.2%. The drop in the food sub index was mainly due to the fall in world sugar and wheat prices and also to favourable weather patterns boosting agricultural produce. The fuel and light sub-index was lower in 1999 as a result of declining petroleum prices at the start of the year. The miscellaneous and clothing indices picked up to 10.3% and 1.3% in 1999 from 7.5% and 1.0% in 1998.
Plantation sector:: Despite recent downward movement in the market investors were observed to show faith in plantation stocks. This was mainly due to the revival of tea prices & positive sentiments towards global rubber prices. The upward trend registered in tea prices is expected to be more prominent in the first quarter driven by the seasonal improvements expected in the quality of out put. Though we expect a substantial yoy increase in the overall market NSA for year 2000, we expect the stocks with more exposure to high growns to register higher yoy advances in earnings, as these are likely to improve by higher margins given the current demand supply conditions. Further we believe the stabilisation of East Asian currencies to result in rubber prices to move well in to registering yoy increases in year 2000. Thus we believe plantation sector stocks to register substantial earnings advances in year 2000, with the recovery being more pronounced in stocks with exposure to rubber & high elevation teas.
Bartleet’s Weekly Market Commentary
The highlight of this week’s trading was Wednesday’s entry of Talawakelle Plantations Ltd to the market, which attracted much needed investor interest towards Colombo Bourse. Boosted by this enthusiasm, both the ASPI and MPI appreciated 9.2 and 20.5 points for the day which however could not prevent a decline of 6.9 and 17.5 points WoW to 549.6 and 892.5 levels respectively. Total turnover this week remained a disappointing Rs. 193.88 Mn with an average daily turnover of Rs. 38.77 Mn. Foreigners continued to be net sellers for yet another week resulting in a net outflow of Rs. 68.31 Mn with foreign participation accounting for 5.5% of purchases and 40.7% of sales. Market Capitalization dropped to Rs. 108.5 Mn while market PER remains attractive on 6.3 With trading being restricted to three days next week, we anticipate the market to remain on the quiet side.
Talawakelle Plantation’s entry to the market, though delayed by two days, attracted strong interest which was evident by the fact that a little over 2 Mn shares changed hands on the opening day itself, which accounted for 70% market turnover. The stock which opened the counter at Rs. 13.50 closed at Rs. 17.00 which was the maximum price for the day. However the highest price of Rs. 19.25 was reached the following day, yielding a return of 92.5% on its IPO price of Rs. 10/-.
Heavily traded stocks for the week include Talawakelle, DFCC, Grain Elevators, Sampath Bank, Lanka Milk Foods and Ceylon Tobacco. Among the 16 sectors on the boourse,, Trading was the only sector that recorded a significant gain (8%) while Diversified, Plantations and Services sector indices recorded marginal gains from the previous week’s closing. Noteworthy declines were recorded in Motors (4.7%), Investment Trust (4. .1%), Manufacturing (3.6%) and Banks, Finance and Insurance (3.3%)