• Market Review

Market Review
Market greets the arrival of the long awaited rebound
The pull back, market was expecting for some time, finally arrived taking the indices up significantly during the past week. This rebound could continue during the coming week as well, till the ASI reaches the 500-550 area. Short term profit taking may emerge above 500 and continue with rapidly rising momentum close to 550 level. The prevailing gloom and doom in international markets and the government's inability to go for a drastic devaluation, ahead of the string of elections coming up next year, shall limit the up move. Movement of ASI even up to 600 is doubtful under the present circumstances.

Technical indicators confirm that a rebound is under way
Technical indicators and charts show ample evidence of a technical retracement that had just got under way. A similar rebound took place in late June this year carrying the market up by around 50 points on the ASI. The current pull back that started at 475 may take the market slightly above 500 (perhaps to 510 or 520). This temporary up move should not however be misinterpreted as a reversal of the prevailing bear trend. Only a convincing rise above 600 could signal a trend reversal. Such an event is most unlikely given the present mood in the market and the situation in the country. On a downward move the first target will be the recent low of 475. Any breach of this critical level shall trigger a sell off targeting the 350-400 range.

Global equity markets experience a bumpy ride
The rising power of Communists in Russia continues to worry the Western markets. The crisis in Russia worsened with the Duma (Russian Parliament) rejecting Boris Yeltsin's nominee for premiership, Chernomyrdin, for the second time. Yeltisn finally gave in by nominating Foreign Minister Primakov to be the next prime minister. Primakov was Deputy Director of the dreaded KGB during the Communist era and his nomination was greeted with immediate approval by the Communist Party who command considerable power in the Duma. The new prime minister is expected to appoint at least a couple of Communists to Cabinet posts when he assumes office. The prospect of Communists coming back to power has upset the Western world. The shares in New York, Europe as well as in the Far East plummeted as a result. However the cut in interest rates in the US sent the Yen up against the dollar resulting in a sharp rise in the Tokyo market earlier this week causing a temporary euphoric sentiment that spread throughout East Asia. This positive mood was enhanced by the expression of Hong Kong government's determination to maintain its HK Dollar peg at the current level whatever the cost. However the celebrations did not last long and the markets stated sliding again on Wednesday and by Friday they were back where they started.

Market Outlook
Ken Starr dropped his bombshell on Thursday sealing President Clinton's fate
Special investigator Ken Starr submitted his report on President Clinton to the US Congress on Thursday. He is widely expected to level serious charges against the President including perjury, attempting to obstruct the course of justice, etc., which may form the basis for protracted impeachment proceedings. Though ultimate removal of Clinton from office on the conclusion of impeachment proceedings may take over a year, any such development is likely to upset US as well as other global financial markets. After all Clinton is quite rightly given credit for the current economic boom in the US. The country's economic fundamentals were never so good during the past 28 to 30 years. The likelihood of his removal from office prematurely, shall obviously be bad news for US.

Government holds the key to the next market move
The duration and extent of the current up move in the market shall depend on the monetary policy initiatives taken by the government during the next few weeks. If they take the bold move to devaluate the Rupee and ease interest rates the market could easily pierce through the critical resistances and establish a bullish trend. On the other hand inaction by them would trigger another binge of selling which may be much worse than the one we experienced recently.

Heavily Traded Stocks:
Asia Capital (1,278,500), Merchant Bank (786,300), Maskeliya (527,700), Lion Brewery (514,000), Dockyard (345,600), Sampath (342,500), DFCC (315,700), Asian Hotels (285,200), Blue Diamonds (255,700), Distilleries (250,300)

Economic Outlook
Rupee continues to hold its ground stubbornly

With the market P/E hovering around 7.8 the only thing that was preventing the foreign players from coming to this treasure trove of a market was the overvalued Rupee. Still the government showing no sings of budging from their stubborn determination to resist all pressure to devalue the Rupee.

Treasury Bill Auction - The Treasury Bill auction held on Wednesday 9th September 1998, was over-subscribed with bids amounting to Rs. 6.662m received. The government offered Treasury Bills worth Rs. 4172m. The weighted average yield for three month, six month & twelve month bills were 12.47%, 12.88% & 12.98% respectively.

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