• Market Review
• Why Quoted Debentures?
• De La Rue launch revolutionary new secure plastic card

Market Review
Market on a Roller Coaster Ride

The market, as predicted by us last week, plummeted 20 & 26 points (ASI & SI) on Friday and a record 33 & 50 points on Monday, mainly due to the bleeding of liquidity. The record one day fall in the indices was further fuelled by the dramatic fall in the Japanese Yen, which fell to 146 Yen per US$ before recovering to 143 by Wednesday bringing back worries about the high exchange rate of the local Rupee. Yen started pulling back on rumours of a possible concerted intervention by the G7 central banks to support the collapsing Japanese currency. By then the market had already discounted the crisis in the Far East and tension in South Asia. After the heavy fall on Monday the market pulled back by a meagre 6 & 4 points on Tuesday to decline again by 4 & 17 points on Wednesday due to lack of investor interest. Then the buying spree in US & European markets began on Wednesday and in the Asian Markets on Thursday sending the indices spiralling upwards. This bout of frenzied buying was triggered by the news that the US Federal Reserve and the Bank of Japan bought Yen against Dollars in the currency markets to prevent the Japanese currency from falling further. Buying pressure gathered momentum on Thursday as the Deputy Treasury Secretary of US, Lawrence Summers left to Tokyo on a special mission with an offer of US$ 2 billion in emergency assistance to overcome the immediate problems facing the ailing Japanese economy. Falling Yen made Japanese goods extremely cheap in US and as a result a large number of US based multinationals were under threat. US 'gesture' therefore was motivated largely by the threat to their continued property coming from the devalued Yen. Local market took a clue from the rising World markets and moved up 9 & 18 on Thursday. Though buying was subdued on Thursday and Friday, due to the acute shortage of liquidity in the market, it should gather momentum on Monday and move up significantly as investor confidence return on the expectation of foreigners starting to look at Asia again.

Next Technical Resistance at 675
Market came down to the weak support at 600 on its downward journey and is now expected to pull back to 675 where it will meet some resistance before proceeding to the psychological barrier at 700. Though the upward movement may be a bit sluggish the downward risk will be limited due to the lower degree of leverage in the buying positions under the new regime of CSE rules. Plantation shares will lead the way.

Avid buying of plantation company shares, dumped previously on wild rumours spreading in the market, is a premonition of how these shares would lead is the recovery in the market, is a premonition of how these shares would lead the recovery in the market. These are undoubtedly the best shares in the market today offering good value for money. With extremely low price earnings multiples and the prospect of making supernormal profits in the coming years these shares will join the ranks of blue chips very soon.

Market outlook
Some Hope for Asia
The decision of the US government to come to the assistance of the ailing Japanese economy is good news for other troubled economies in Asia. The change of leadership in Indonesia and the willingness of the new regime to effect the economic reforms proposed by the IMF shall undoubtedly set them on the road to economic recovery. As money starts flowing into Far East, other emerging markets in Asia such as the local stock market too would definitely benefit since most fund managers consider whole of Asia as a single region.

Market Statistics
The advancers to decliners ratio for the week was 0.32:1. It fluctuated during the week from a low of 0.17:1, to a high of 0.78:1. Foreign activity for the week was 13.12% of the turnover. Not foreign sales amounted to Rs. 32.46

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

Losers: Stocks that moved down significantly during the week were:

Plantations Sector Shall Propel the Economic Recovery

In the fifties and sixties, just as in the British era, Sri Lanka's main, if not the only, source of foreign exchange earnings was its agricultural exports, mainly tea, rubber & coconut. At the time of the Korean war in the mid fifties this country had a large volume of foreign reserves and was a net creditor nation like some prosperous NICs in the far East such as Hong Kong and Singapore. However the plantations industry, for which we had a definite 'comparative advantage', rapidly declined after their nationalization by the government and was overtaken by other contemporary sources of foreign exchange such as gem exports, expatriate remittances, hotel & tourist industry and the garment exports. The decision to privatize the management of plantations and lease out the land to these plantation management companies on long leases, is likely to bring about a revolution in this buoyant sector. Already the newly privatized plantation companies have started to come up with pretty impressive results. We feel that in the coming years the plantation industry shall improve by leaps and bounds and their shares shall grow in stature to become the most sort after blue chips in the market.

Treasury Bill Auction - The Treasury Bill auction held on Wednesday 10th June 1998, was over-subscribed with bids amounting to Rs. 6.335m received. The government offered treasury bills worth Rs. 3,221m. The weighted average yield for three-month, & six-month bill decreased by 8&3 basis points to 11.78% & 11.91% while yield for twelve-month bills remained unchanged at 12.09%

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

Why Quoted Debentures?

The emerging trend of quoted debentures is a positive impact on the capital market of this country. For years, the investors had the option between equity and the treasury bills for investments. In terms risk and return, the existing instruments were not adequate for a serious investor who requires a moderate return with low risk.

The Stock Market offers attractive returns, sometimes even in excess of 100%. In the case of recent plantation stocks, the return on investment exceeded 300% for 3 months. Though the returns are attractive, the stook market poses inherent risk which even a diversified portfolio manager finds it difficult to avoid. In annulaised terms, stock market returns for last ten years is around 20% per annum, which is far better than any other financial instruments.

The quoted debenture business commenced with Vanik, Overseas Realty and followed by Ceylinco Securities. As at present, three private commercial banks have decided to issue quoted debentures in order to fund their housing loans operations. Hatton National Bank, Commercial Bank and Seylan Bank. These debentures offer attractive returns with a range of 13.5%-15%, higher than treasury bills and bonds.

Quoted debentures is a must for a diversified portfolio for regular flow of investment income. Specially in a depressed market as at today, debentures could be an indispensable financial instrument. From another point of view, the present conditions in the stock market with index fluctuating below 625 offers excellent returns for a medium to long term investment. Some analysts believe, a rate of return in excess of 50% is possible on 12 months investment horizon. But the stock market is vulnerable to external shocks as at present. Thus it got very high risk associated with return.

Generally, these quoted debentures are ideal investment potions for pensioners and other investors who require regular income flow. Even for this type of investors, a partial investment in the stock market could enhance their overall earnings.

De La Rue launch revolutionary new secure plastic card

De La Rue Identity Systems, one of the world’s leading suppliers of national identification solutions, driving licence issuing schemes and passport issuing systems, announces the launch of FORTAS, a revolutionary new long-life card material and personalisation technique that will meet the unique specifications and requirements of government identity schemes worldwide.

FORTAS is the first card material and personalisation technique to be developed specifically for the Government Indetification market. The new identity card brings together enhanced durability and security properties in a preconsolidated format that will exceed the ten-year life expectancy requirement set in most government issuing schemes. FORTAS is the most secure and durable card in the world.

FORTAS’ four levels of security come from the personalisation method, traditional security print features, a unique tamper evident feature and a 2 mm wide bank note style thread carrying a holographic image that is embedded in the card material. The tamper evident device shows any attempt to remove either the card’s photograph or text by glowing brightly when exposed to an ultra violet (UV) light.

The FORTAS card is the most durable material on the card market. The finished FORTAS cards conform to all ISO specifications and independent testing with other products in the market has shown them to be the most durable cards in existence.

To meet the growing demand from Governments to provide multi-function identification cards, De La Rue also brings its expertise in the smart card arena to the FORTAS card. By introducing an integrated chip into the card material, several identification schemes such as national identification, driving licence and travel details can be combined securely and conveniently onto a single card.