• Market Review
• Weekly Stock Market Review
• Stock Market Review

Market Review
May 20, 1998

Shock waves from the crisis in the Far East and the South Asian nuclear arms race had a devastating effect on global markets
Markets around the globe tumbled in domino style as it became clear that the politico-economic crisis in East Asia is likely to affect economies across the world and that even the mighty and supposedly invincible US too will not be spared. Overvalued US market took a clue from the collapsing Far Eastern markets and came down sharply on Tuesday and Wednesday. The European markets followed. Local bourse which is heavily dependant on foreign participation fell like a ton of bricks as shaken international fund managers started pulling money away from the Asian region. Tit for tat nuclear testing by Pakistan added to the gloom in Asia. When US and Allies cut aid to India and Pakistan their stock markets collapsed and currencies plummeted. Falling regional currencies brought back worries of a possible devaluation of the local Rupee to fall in line with them and to maintain the competitiveness of our products in international markets.

Panic in Sri Lankan market is possibly due to ignorance and misinformation
Sri Lanka is neither a nuclear power nor does this country take any side in the triangular nuclear power struggle between India, Pakistan and China. However, despite excellent economic fundamentals and magnificent corporate results for the financial year just ended, the stocks at the local bourse took a severe beating during the past few weeks. This unexpected sell out could possibly be due to uninformed apostles of doom creating an atmosphere of panic among the native retail investors. Being a small market the local stock market is susceptible to attacks by unscrupulous manipulators with hidden agendas. In fact it was 'heard in the market' that the current sell off was triggered by just one broker selling on behalf of a US based fund. Forced sales by brokerages with liquidity difficulties was another factor contributing to market's debacle, especially on Friday.

Market is technically limping
Sri Lankan market armed with strong fundamentals made a remarkable recovery closing above the technical support of 730 on Tuesday. However the uncertainty in the Asian region was too over-powering to just ignore and as a result the indices fell sharply from Wednesday to Friday with ASI ending just above the psychologically significant 700 level on Thursday. The sharp fall below 700 on Friday, mainly due to forced sales by local brokerage houses, brought the market towards its strong technical support at 670. Market should rise sharply from these levels as bargain hunters realise the potential gains that can accrue by aggressively buying at these absurdly low prices.

Plantations in general and Balangoda in particular shall infuse some life to the market
Plantation company shares bouncing with pep and vitality from astounding 1st quarter results shall provide strong support for the market at current levels. Balangoda Plantation Company shares are expected to start trading on Wednesday June 3rd at well above 60. As Balangoda climb on strong investor demand it is likely to drag up along with it the whole plantation sector.

Hapugastenna block sale postponed
It seems unlikely that the PERC will call for fresh offers for the sale of 3.8m government held shares in Hapugastenna till the PIMC privatisation issue is sorted out with James Finlay, the successful bidder. In any case this will not be done till the market turns around and the stock moves up at least above 50. Considering the excellent profits Hapugastenna has come up with for 1Q of this year we may see the stock at these prices very soon.

Market statistics
The advancers to decliners for the week was 0:4:1. It fluctuated during the week from a low of 0:23:1 to a high of 1.23:1. Foreign activity for the week was 2.36% of turnover. Net foreign sales amounted to Rs. 124.6m.

Market Outlook
Foreign interest in the market may improve in the coming weeks
One could reasonably expect the money pulled out of North American, European and Far Eastern Markets to be reallocated by foreign funds in the coming weeks. Sri Lanka which was almost unaffected by the turmoil in the Far East and is a not a party to the nuclear arms race triggered off by India may probably be a favoured destination. World Bank cut off aid and US imposed an aid and arms sales embargo on India and Pakistan in the aftermath of the testing of four nuclear devices and a thermo-nuclear device last week by India and Pakistan's retaliatory five nuclear tests carried out on Thursday. On the other hand the aid Sri Lanka Group, the grouping of affluent countries providing assistance to our country has pledged US$780 million in aid this year. The strong economic fundamentals and the climate of relative political and social tranquillity shall attract a considerable amount of investment money to this country.

Gainers: Stocks that moved up significantly during the week were:

Losers: Stocks that moved down significantly during the week

Heavily Traded Stocks:
Vanik (1,666,150), Asia Capital (1,342,900), Blue Diamonds (813,300), Kelani Valley (700,400), Vanik Warrant 2 (643,500), Hapugastenne (474,400), Distilleries (468,100), JKH (330,357), Ceylon Investments (304,700), Dockyard (285, 800), Sampath (260,600).

Economic Outlook
Sri Lanka could be the net beneficiary from the bitter power struggle
in the region
Sri Lanka's economy is likely to benefit most from the fall in grace of our belligerent neighbours in the global arena. India and even Pakistan is likely to look at Sri Lanka for support and supplies as international sanctions begin to bite. If the government is serious in implementing their well publicised policy of making this country the financial and trading hub South Asia this is the golden opportunity they should grab with both hands. Therefore the immediate de-regularisation and dismantling of all tariff barriers and exchange controls is a policy priority the rulers must devote their attention to if they are to capitalise on the recent developments in the region and turn them to our advantage.

Treasury Bill Auction ' The Treasury Bill auction held on Wednesday 27th May 1998, was over-subscribed with bids amounting to Rs. 3,126m received. The government offered treasury bills worth Rs. 2,702m. The weighted average yield for three-month, and twelve-month bills increased by 4 & 3 basis points to 11.56% & 11.74% while yield for six-month bills remained unchanged at 11.74%.

Exchange Rates ' (Sri Lankan Rs. per Currency unit)

CDIC Sassoon Research
Sarath Rajapakse (Head of Research)
Thushara Hettithantrige ' (Research Analyst)

Weekly Stock Market Review
May 29, 1998

Though we don't possess nuclear power. We are feeling the power of it. The developments in India & Pakistan have pushed the risk premium for the subcontinent. The inevitable economic sanctions, at least will stop the Foreign Direct Investments and Portfolio investments in the region temporarily.

Even the impressive corporate performance could not stop external shocks, which continue to pull the market down while the indices proved our predictions. All Share Index broke 700 barrier on Thursday while Friday witnessed one of the biggest fall in recent months. At close, All Share has lost 44 points to reach 682 while Sensitive has declined by 80 points during the week. The panic foreign institutions propelled the downward pressure on the market, making retailers disposing their basket of shares for low prices. Absence of buying interesst with the expectation of bearish trend, kept daily turnover levels below Rs. 100 million.

Negative sentiment driven Foreign investors continued with their disposals. Their pessimistic view is influenced by the developments in the region as well as much awaited US interesst rate rise to be announced by Fed in the coming week. Prevailing conditions prove that volatility in the Asian Region is going to stay for some time. The cumulative effect could be an upcoming sluggish period which justify present disposals. The week recorded foreign sales to the value of Rs. 134 million while the purchases stood at a dismal level of Rs. 9 million. The net cutflow for the week was Rs. 125 million making the cumulative outflow for last four weeks in excess of Rs. 425 million. It's extremely difficult to sustain the upward trend in the market without the involvement of foreign investors. Since they are on a negative sentiment, we do foresee a bearish trend in the coming month.

Nowhere in this World, super corporate performance pushes the price down. But it happened in Colombo. Even the impressive performance of JKH, Dockyard, Aitken Spence, Lanka Walltiles, Hapugastenne and Maskeliya could stop the fall. This proves the current negative sentiment in the market is externally influenced. The Colombo market appears to be attractive on a medium term investment horizon. A return in excess of 30% could be envisaged for selective selected stocks on a 6-12 months period. We continue to focus on JKH, Tokyo Cement, Grain Elevators, Dockyard, Watawala, Kelani Valley and Aitken Spence.

MMBL Group Research
Allied Phillip Securities Ltd.

Stock Market Review
Week ending 29th May 1998

Regional tensions depress Colombo stocks
The build-up of tensions in the subcontinent culminating in Pakistan's nuclear test on Thursday hammered Colombo stocks with foreigners leading the selling. The ASPI lost a whopping 45 points (-6.2% WoW), while the blue chip index lost a resounding 85 points (-7.7% WoW) to close at 1,024.1 on Friday. Average daily turnover halved to Rs. 86.84 m from Rs. 171.9 m last week. Foreign activity remained on the selling side with total activity falling to a dismal 17% of total turnover.

March exports grow 16.8% YoY
March export data came in stronger with non-garment industrial exports showing positive growth (+9.4% YoY) for the first time since November 1997. Garment exports grew by a strong 27% YoY in March to boost overall export growth to 17% YoY. However, while the pick up in exports is a positive sign, we remain cautious on the March figures as it comes on a low base for industrial exports in March 1997. Imports fell 1% YoY causing the trade deficit to fall 30% YoY to US$ 451 m in IQ98. Foreign exchange reserves stood at US$ 2.81 bn as at March, adequate for 5.4 months of imports. Our view on the currency remains for a 10.3% depreciation for the Sri Lanka rupee, taking it to Rs. 68.25/US$ by YE 98.

Corporate results show solid growth
John Keells Holdings (JKH): full year results for FY 3/98 report a turnover growth of 51.8% to Rs. 8.68 bn. PAT after minority interest is up 91% to 808.5 m. BUY.

DFCC Bank Ltd: Final results for FY 3/98 indicate an income growth of 15% to Rs. 2,762 m and a PAT increase of 56% to Rs. 653 m. With the contribution from Commercial Bank profits, DFCC Bank's profit growth will be strong next year. At the price of Rs. 255 the counter is trading 9.7% 99 FPS and 8.3% OOEPS BUY.

Dipped Products Ltd (DPL): full year results for FY 3/98 show a turnover growth of 14% to Rs. 2182 m. PAT after minority interest has increased by 50% to Rs. 237.7 m. At the current price of Rs. 110 the stock is trading at 7.6% and 6.5% HOLD.

Lanka Tiles Ltd (LTL) full year results for FY 3/98 report a turnover growth of 38.5% to Rs. 2,00 m. PAT after minority interest before extraordinary item grew 41% to Rs. 52 m. At the current price of Rs. 11.50 the stock is trading at 4.1% and 3.6% prospective earnings. However, we don't expect the stock to out perform the market in the medium term HOLD.

Colombo Dockyard LTD (CDL) IQFY 12/98 results indicate a growth in turnover of 70.5% YoY to Rs. 790.9 m. PAT has come in at Rs. 98.8 m. up by 935% YoY. The counter is trading at 3.3% EPS 98 and 2.6% EPS 99 and given the removal of key overhangs on the company, the stock should re-rate in the medium term. BUY.

Volatile but cheap
The volatile situation in the region makes it difficult to foresee market direction in the weeks ahead, although buying support was seen on Friday. However, given the excellent corporate results continuing to stream in, we maintain our positive view on the market in terms of fundamentals and continue to advise investors to accumulate fundamentally sound stocks at these lower levels. Our core recommendations remain. Ceylon Grain Elevators, Maskeliya Plantations, Watawala Plantations and Colombo Dockyard, Lanka Lubricants.

JF-HNB Research, This information is as at 29th May 1998.