• Market Review

Market Review
Sell off Continues
Stock Market starved of liquidity and shunned by the foreigners was rolling down the precipice looking for some sort of support and unfortunately there was none in sight. Investors who were not sure as to what really hit them were getting rid of their portfolios and staying clear till things settle down. Market slid through the psychological barrier of 600 and weak technical support at 580 with consummate ease. Next barrier is at the psychological significant recent low of 550. Of course there is this extremely strong technical support at 500. At the rate the market is collapsing at present we wouldn't be surprised if these levels are reached pretty soon.

Oversold Market Could Spring Back Sharply
Many shares in the market are trading below their book values. If there were 'corporate raiders' and 'asset stripers' in this country, the current prices would have definitely triggered a series of hostile take-over bids. The shares are selling at such absurdly low prices that one could easily expect to make a super normal profit by acquiring a good balanced portfolio of securities at current levels. Once a significant number of investors with sufficient buying potential are convinced of this potential opportunity, the market could spring back sharply.

Rupee's Artificial Strength Shall keep Foreign Portfolio investors away for a While
The sharp fall in the Yen was temporarily arrested by concerted intervention in forex markets by the U.S. Federal Reserve and the Bank of Japan. Co-ordinated intervention by these two central banks managed to push the Yen sharply up from 146 Yen/ US$ to 134 Yen/ US$. However on Thursday (25th) the Yen fell back to 141 level as speculators saw more scope for the US currency to rise higher once the wave of intervention loses its clout. Earlier some analysts predicted a Yen lvel of around 160 Yen/US$. However fears of persistent waves of intervention by G7 central banks shall keep the dollar capped much below the level expected before.

Far Eastern and Sub Continent Currencies still under Pressure
The demand for dollars to service debts owed overseas sent the Far-Eastern currencies on a tail spin again. Indonesian Rupiah came very close to its recent low of 17,000 Rupiah per US$. Malaysians were seen selling their once lucrative businesses, at a fraction of their net asset values, to Americans and Europeans who are arriving in hordes to help themselves to the bargains galore at the East Asian 'Garage Sale'. To make matters worse expatriate Indians who brought home a massive quantity of hard currencies earnd abroad, during the Rao government's open door policy era, were seen reconverting their Indian Rupee back to dollars before packing their bags. Indian Rupee just as its Pakistani counterpart is trading at all time lows. But the strange thing is that despite all this Sri Lanka Rupee is holding its ground without budging an inch. This perhaps is the main reason for the large scale sell-out by foreign players during the past few weeks. ASI is currently back at its 1989 low in US$ terms.

Markets Outlook
Rapid fall in the indices during the past few weeks has created a seriously oversold situation in the market. Once the market turns around at these levels it will move up quite briskly. With the likelihood of a Presidential election on the cards we may see some unusual volatility in the market in the coming months. The direction of the next major move in the market shall depend on the direction in which the political winds are blowing. Anyway below 550 on the ASI, there will be aggressive buying by retailers and local institutions. One cannot just go wrong buying at these absurdly low prices. Sharp pull back on Friday indicates how fast the market will move up eventually when it turns around.

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

Market Statistics
The advancers to decliners ratio for the week was 0.44:1. It fluctuated during the week from a low of 0.2:1, to a high of 3.28:1. Foreign activity for the week was 37.21% of the turnover. Net foreign sales amounted to Rs. 167.9.

Heavily Traded Stocks: Distilleries (1,394,900), JKH (932,400), DFCC (423,600), Vanik W2 (387,500), Lanka Lubricants (373,700), Aitken Spence (316,100), NDB (312,900), Grain (288,100), Lanka Ventures (264,000), Kelany Valley (262,200), Hapugastanne (257,200).

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

Rupee will remain at Current Levels till all Elections are Over
The foreigners selling their equity investments anticipating a Rupee devaluation will be disappointed this year since the government in all probability shall refrain from going for any devaluation ahead of the elections. Local economy heavily dependant on imported essentials shall enter an inflationary spiral if the rupee is devalued to bring it down to its proper exchange rate. This is the last thing the government will want to happen ahead of an election.

Interest Rates too Shall remain at Current Levels
The government would be compelled to maintain interest rates at a relatively high level to keep the Rupee propped up at its current artificial level.

Treasury Bill Auction - The Treasury Bill auction held on Wenesday 24th June 1998, was over-subscribed with bids amounting to Rs. 4,495m received. The government offered treasury bills worth Rs. 3,190m. The weighted average yield for three-month bills decreased by 3 basis point to 11.75, for six-month bills it increased by 1 basis point to 11.92% while the yield on twelve-month bills remained unchanged at 12.09%.

CDIC Sassoon Research
Sarath Rajapakse (Head of Research)
Chaminda N. Silva (Research Analyst)