• Market Review
• LG air conditioners to become world's best
• Yet to become operational
  National Enterprise Bank profit: Over Rs. 4 m.
• Weekly Stock Market Review

Market Review
May 22, 1998
Technical picture is dull but offers some hope
Easy penetration of the technical supports at 750 and 730 displayed the nervousness of the market Conflicting reports from various analysts, especially those witn vested interests managed to spread a feeling of panic among the market players prompting them to sell out at absurdly low prices. The fact that the market recovered substantially and closed almost at 750 on Friday was encouraging. We expect the market to move up well past the barriers at 730 - 750 and progress towards the resistance at 790 — 800.

Trading in Balangoda Shares will begin next Wednesday
Shares allotted to successful applicants at the Balangoda IPO have already been lodged at the Central Depository System (CDS). Trading in these shares shall begin on Wednesday 3rd June. This highly profitable plantation company's shares are likely to attract unprecedented attention of investors and speculators and are sure to start trading well above 50. One shouldn't be surprised if the share rises above 70 on the first day itself. Rising Balangoda share is likely to pull along the rest of the plantation sector with it. The recently listed Udapussellawa and Hapugastenna are the most likely beneficiaries though Watawala, Maskeliya, Kotagala & Bogawantalawa too may register significant gains.

Hapugastenna Anti Climax
The invitation for offers to sell the government held block of 3.8m shares of Hapugastenna ended in an absurd anti climax. The offer, which was expected to close on the 14th, was subsequently extended to 18th May. Since top officials of the PERC were attending Parliament where the privatisation of Air Lanka debate was in progress, no responsilbe person was available for comment on the offers received on the 19th. However it was ‘heard in the market’ that no offers were received and they will not entertain any offers below 55. However none at the PERC were in a position to deny or confirm these rumours. It is unlikely that PERC would call for fresh offers till the PIMC privatisation controversy is sorted out. In the meantime Hapugastenna share is on a roller coaster ride inthe market. Some interested parties keen on buying large blocks of shares in some selected plantations such as Hapugastenna, Watawala, Udapussellawa, Kotagala, Maskeliya & Kelani Valley at bargain prices were seen unnerving the retail investors prompting them to panic and sell at the bottom of the market. However the plantation share recovered significantly on Friday when Kelani Valley came up with an impressive 90m profit for the first quarter of this year. Rest of the plantations is expected to come up with even better results. We still maintain our original prediction of triple digit prices for the plantations before the end of the current year.

Market Outlook
Sanity will prevail and market shall bounce back in the coming weeks
Good economic fundamentals and fabulous corporate results shall enable the market to resume its upward move after the bad air from the Indian/Indonesian episode blows over. International operators are likely to pull out of overpriced North American and European markets and start looking at Asia soon. Avid buying by foreigners seen during the month is a good omen. We are still very confident that the local bourse shall outperform many South Asian and Far Eastern equity markets this year.

Market Statistics
The advancers to decliners ratio for the week was 0.71:1. It fluctuated during the week from a low of 0.68:1 to a high of 1.56:1. Foreign activity for the week was 43.19% of turnover. Net foreign sales amounted to Rs. 208.94.

Heavily Traded Stocks:
Kelani Valley (2,242,932), Asian Hotels (2,613,400), Vanik (1,570,000), Lion Brewery (851,000), JKH (825,000), Royal Ceramics (800,900), Asian Capital (786,700), Blue Diamonds (73 6,500), Hapugastenne (705,000), Distilleries (638,300).

Political Outlook
Markets Celebrate Suharto's Ouster
Markets in Far East and South Asia celebrated the end of the Suharto era by registering modest gains. with Indian bombs and possible Pakistani reprisalls fully discounted in the markets it is most likely that the Asian markets would stage a remarkable recovery during the coming months. Money that has started moving out of US may end up in these markets. Sri Lankan market is sure to receive its share.

Government Comes out unscathed from the Air Lanka debate
Opposition failed to score any points at the much-publicised Air Lanka debate in Parliament Government may have overlooked certain procedural details in their eagerness to link up the alling domestic carrier with a world-recognised airline with an impeccable reputation such as Emirates. What transpired at the debate was that if any bureaucratic red tape was cut to expedite the deal, it was done with the good intention of benefiting the country's flag carrier and not for any personal gain. After all Emirates is fully owned by the Government of Dubai hence the question of bribery and corrupt practices does not even arise.

Economic Outlook
Sri Lanka likely to Receive substantial pledges of international aid at the Paris Meeting
The excellent reports from the World Bank, IMF and the ADB regarding progress made in the economic front by the present government is likely to assist us in obtaining international aid pledges in excess of US$ 700m at the Aid Group Meeting in Paris on the 26th.

Treasury Bill: Auction The Treasury Bill auction held on Wednesday 20th May 1998, was over-subscribed with bids amounting to Rs. 5, 349m received. The government offered treasury bills worth Rs. 3,5551m. The weighted average yield for three-month, & six-month bills decreased by 4 & 5 basis points to 11.56% & 11.74% while yield for twelve-month bills remained unchanged at 11.93%

Exchange Rates: Sri Lankan Rs. per Currency unit)

CDIC Sassoon Research

LG air conditioners to become world's best

The Choice Issue of Australia - a prestigious magazine of unbiased information for the local consumers, rates LG Air Conditioners as the 'best buy 'for the year 1997.

In addition to this, LG Electronics signs contracts with major companies in the US for large supplies in order to encounter the world's 3rd largest supplier. LG's recent tie-up is with Sears Roebock and Company of US. The deal is for 1.5 million units for the next five years.

LG Electronics has indeed surpassed fierce competition from 40 manufacturers around the world, including Matsushita and Sharp. The company is now recognised by the US for its technologically advanced air conditioners and expects marginal increase in their exports to the US market.

The Sri Lankan market share for the LG air conditioners proves quite impressive. With regard to recent study both window type and split type show a very steady market despite the strong showing of the other brands. This is primarily, because of the in trade record of high reliability and performance, backed by efficient after sales service. Besides, the innovative features and the sleek aesthetic designs have kept the LG brand ahead of competitors.

The latest to LG's innovative features is LG health care air conditioners, which has the unique process of purifying the air, setting it free from bad odour and contamination.

Yet to become operational
National Enterprise Bank profit: Over Rs. 4 m.

The National Enterprise Bank yet to become operational has in its second year ending December 31, 1997 made a profit of Rs. 4,771,214 bringing down its accumulated losses at the end of the year to Rs. 22,021,313.

The NEB, the brain child of the doyen of the financial sector in Sri Lanka, Mr. N. U. Jayawardana held its annual general meeting on May 19. He was also the founder of Sampath Bank.

In his review to the shareholders, the Chairman of the Bank Mr. Jayawardana, says:

It is appropriate to record that it was on the evidence I had furnished to the Hon’ble Minister of Internal and International Commerce and Food on the national character of the mission of the Bank, as envisaged by me, that he had authorised under the Company’s Act the incorporation of the word ‘National’ in the title of National Enterprise Bank. This aim is also signified in the subscript of "Your friend in enterprise" appearing immediately below the title of the Bank.

Mr. N. A. L. Cabraal, in his Chairman’s Review dated 27 January 1997, held out the expectation of the granting of the banking licence by the Central Bank at an early date. Unfortunately, his expectation was belied. Instead, it became necessary for all the four Directors who participated in replacing me as Chairman and in appointing Mr. N. A. L. Cabraal in my place to sell their shares at par to certain bidders and resign from the Board effective from 4 September 1997, thus, closing this chapter of the National Enterprise Bank. Messrs. C. Koh, Balwant Singh, A. M. Moragoda and Sunil Wijesinghe were invited onto the Board and I was unanimously elected Chairman.

As of now negotiations are in train to arrange for the transfer of the shares sold by the former Directors, as well as some of the foreign shareholding which had been perceived to be in excess of the stipulated maximum, to the remaining Sri Lankan Directors and other corporate entities on a basis that is mutually acceptable to all parties including the Central Bank of Sri Lanka. As soon as these negotiations are finalised I anticipate the issue of the banking licence by the Central Bank.

In the meantime, the staff of the Bank has undergone sharp reduction as a consequence of resignation by members seeking assignments elsewhere. In the result the current operations enable the Bank to realise a surplus of the order of Rs. 500,000 per month.

When the banking licence is received, it will become necessary for the Bank to recruit the required staff and occupy new premises as the premises presently occupied are of a stopgap nature. The bank has examined several buildings and will select one which gives it the necessary image.

Despite the unhappy events of the past, the future presents a challenging prospect which I shall endeavour to accomplish with the support of my colleagues on the Board, the staff, the shareholders and, above all, with the encouragement of the Central Bank with whom it will be the duty of the Bank to conduct its relationship on the recognised principle of Uberrima Fides, or ‘utmost good faith’, to which I shall unfailingly subscribe so long as I remain Chairman of National Enterprise Bank.

The issued and paid up share capital of the company is Rs. 250 million and the net assets shows at Rs. 227,978,687.

The directors are: N. U. Jayawardena (Chairman), A. N. U. Jayawardena (Deputy Chairman), B. T. Eliyatamby, A. M. Moragoda, Christopher Koh, Balwant Singh, Nihal Jayawardana (MD), Sunil Wijesinghe.

Weekly Stock Market Review
May 22, 1998

The exit of President Suharto may create some enthusiasm in the regional markets while possible increase of interest rates by Federal Reserve the custodian of the global currency US$, will increase the attractiveness of debt markets in the US. In turn, these factors will affect International Investor sentiment in the coming weeks.

As we predicted, Colombo bourse experienced the bearish trend with retailers and foreign investors were on a fast exit. The local institutional investors played the healers role with selective purchases and gave the much needed momentum. The All Share Index lost 20 point to reach 726. The bluechip barometer, Sensitive Index out paced All Share, to loose 47 points for the week. Turnover levels were moderate with the exception of Rs. 427 million on Wednesday, mainly due crossings of JKH and Hayleys between foreign institutional investors.

During, last two weeks, the net outflow of portfolio investments amounted to Rs 91 million. The increasing volatility in the region with the speculation on Fed increasing rates made foreign investors to pull out from the region gradually. We foresee a continuation of this trend despite impressive corporate performance. The week witnessed foreign purchases amounting to Rs. 370 million compared to total sale of Rs. 578 million making a net outflow of funds to the value of Rs. 208 million.

Based on increasing exports, favourable tea prices and moderate foreign direct investments, the year 1998 may achieve a GDP growth in excess of 6% for 1998 compared to 6.4% in 1997. Improved first quarter corporate performance indicates a better year while upcomming provincial council elections will make room for public opinion. The increasing US interest on LTTE affairs is an indication of a possible mediation for a lasting peace for which the country has been waiting for more than a decade. The year 1998 will be a crucial year for both peace and economic growth.

We are not with a negative sentiment but do foresee a stagnation period ahead due to more of external factors. In the absence of factors that could propel the indices upwards, the bearish trend will continue and the All Share may fluctuate within a narrow range from 700 levels. We continue to advice investors to be more cautious and to expand the investment horizon into six months to one year period. The buyers list cannot exclude growth potential stocks such as Grain Elevators, Watawala, Kelani Valley, Dockyard, Tokyo Cement. DFCC and Aitken Spence.

MMBL Group Research
Allied Phillip Securities Ltd.