      Business Editor : Eriq Dewanarayana
Market
Review During the past few weeks market made a couple of abortive attempts at breaking out through the critical technical barrier at 510. It is about to make the third attempt and failure this time means that the resistance is too tough to be conquered. Given this scenario a significant decline in the market is inevitable. It is most likely that the market could test its recent lows once again pretty soon. Market Outlook The 0.25% cut in US interest rates announced a few days ago shall spur the US economy that was facing the danger of slowing down in the wake of the Asian crisis. US rate cut is sure to be imitated by the European countries who were waiting for the Fed to give them the lead. All these mean that the already booming economies in the West are likely tore-enter a new phase of economic prosperity sending their stock markets sky high. Where will the money come from? Unfortunately it has to come from already battered markets in South Asia, South East Asia and Japan. Japanese market already hit a 13 year low and is likely to head lower. Most South and South East Asian markets are likely to follow suit. Technical Outlook Gloomy with the Market Hanging on a String A market close below 498 on Friday could trigger a self-off since it is the 'Stop and Reverse' point on Parabolic SAR charts of the ASI. It is also the neckline of a miniature reverse 'Head & Shoulder' formation on price charts of the ASI. Considering the eagerness of the foreigners to sell this gloomy scenario cannot be ruled out. Many retail investors could follow the foreigners and sell in the hope of buying back more shares with the proceeds from the sales when the markets bottom out. Given the prevailing mood in Asian markets that is a very rational strategy to adopt. Effects of the Draining of Liquidity by the Two Successful Debenture Issues and the Kahawatta IPO will be felt The effects of the severe draining of liquidity from the secondary market by, the recently concluded, two very successful bank debenture issues and the forthcoming Plantation Company IPO is sure to be reflected in low trading volumes and market declines in the coming weeks.
Gainers: Stocks that moved up significantly during the week were
Losers: Stocks that moved down significantly during the week
Heavily Traded Stocks: Veytex (3,353,600), Palm Garden (536,800), Distilleries (283,600), Vanik Warrants 2 (221,300), Grain Elevators (215,400), Kelani Valley (196,400), Kelani Tyres (120,200), Vanik (95,500), Seylan Bank (91,800), Watawala (90,100). Political Outlook Arrest and subsequent torturing of the former Deputy Prime Minister Anwar Ibrahim by Mahatir Mohammed's despotic regime in Malaysia rattled the already battered markets in the Far East. Growing political unrest in Indonesia added to the Asian worries. Economic Outlook Russian crisis getting worse day by day and Japanese economy showing no signs of a positive response to the remedial measures already undertaken by the government and the IMF the possibility of a global recession cannot be ignored. Infact this aura of pessimism caused the US market to plummet during the past two trading sessions. The 0.25% rate cut was not successful in making any impression at the market place. Treasury Bill Auction — The Treasury Bill auction held on Wednesday 30th September 1998, was over-subscribed with bids amounting to Rs. 3849 m received. The government offered treasury bills worth Rs. 3,844 m. The weighted average yield for three month, six month & twelve month bills were 12.41%, 12.8% & 12.99% respectively. — CDIC Sassoon Research Weekly
Stock Market Review
Even though the Fed reduced its interest rate the global equity markets experienced declines. According to US economists, the world is experiencing the worst financial crisis since the great depression of the 1930s. The fact that soaring unemployment throughout the world reduces consumption, and thereby reduces demand, proves the impeding recession. Within this global scenario, the Colombo bourse did not experience much change. The on-going security situation in the northern front resulted in lower activity in the market. Lack of institutional interest added to this, and dismal turnover levels were scene. The All Share Index lost 14 point to close at 497 while the Sensitive Index declined from 728 to 709. The average daily turnover for the week was Rs. 16 million. Retail investors also showed some pessimism in the direction-less market. Foreign investors showed little involvement with average contributions below 19% of the total turnover. The week recorded a net inflow of Rs. 4.19 million with the total purchases amounting to Rs. 12.69 million. In the economic front, the rate of depreciation of the rupee has slowed down. With the current developments in the security front, it's unlikely a rapid depreciation will follow, though the value of the rupee directly affects the competitiveness of Sri Lankan exports. The international media exposure of the current security situation in the country may hurt the tourist arrivals for the up coming winter, though no cancellations have been received yet. Overall, in the second six months of 1998, the economy may not perform up to the expectation. Within this uncertain environment, the budget for 1999 may focus on an economic recovery with more incentives to the export industries, but may carry few stringent policy measures. Market will continue to be sluggish MMBL Group Research Colombo Consumers‘ Price Index for Sept: Decline - of 0.8 p.c. The Colombo Consumers' Price Index (base 1952=100) published by the Department of Census and Statistics for the month of September was 2232.4. This represents a marginal decline of 0.8 per cent over the level of the previous month. It is significant that this is the third consecutive month in which the Index registered a decline. The annual average inflation for the twelve months ended September 1998, dropped slightly from 10.3 per cent in August, to 10.2 per cent in September. When the Index for September 1998 is compared with that for the previous September, the indicated point to point inflation is 5.8 per cent. This is also lower than the corresponding figure registered for August which was 6.8 per cent. Food prices moved down further by 1.2 per cent during the month, following the decreases of 1.7 per cent and 4.8 per cent registered in July and August, respectively. Price of most varieties of vegetables declined further due to the continuation of the season for vegetables. Price declines were also registered for potatoes, limes, garlic and several varieties of fresh fish. Price increases were, however, registered for coconut, coconut oil and eggs. Prices in the miscellaneous category increased slightly by 0.4 per cent, while prices in the clothing category increased marginally by 0.2 per cent. Prices in the fuel and light categories were unchanged. When the contribution of administered price changes of inflation is excluded, the underlying inflation is estimated to have remained at 8.5 per cent in September. The trend in inflation indicated by the CCPI is broadly consistent with the Greater Colombo Consumers' Price Index (GCPI) which is an alternative price index, also computed by the Department of Census and Statistics. A notable feature of the GCPI is that it has consistently registered a lower rate of inflation than the CCPI. According to the latest figures available for the GCPI, the annual average inflation was 7.6 per cent in August as compared to 10.3 per cent registered by the GCPI for the same month. SLSI elected to the Council of the ISO The Sri Lanka Standards Institution (SLSI) was elected to the council of the International Organization for Standardization (ISO) at the 21st. General Assembly Meeting held on 1998-09-17 in Geneva. This is the first time that SLSI was elected to the highest policy making body of the ISO after being member of this institution for the period of over 30 years. The ISO Council comprising 18 members is elected by the General Membership annually depending on the number of vacancies that occur from time to time. Of the 18 members on the council five members namely, the standards institutions of USA, UK, France, Germany and Japan are permanent members. The rest of the members are elected from among the other 78 National Standards Bodies for the period of two years each. SLSI received the highest number of votes in category IV to be elected to the Council for the period of 02 years from 1999-01-01. The International Standards Institution is a non-governmental organisation dealing with the establishment and promotion of International Standards on a world wide basis. The ISO 9000 series of standards on Quality Management Systems made this institution world famous during the current decade. Many developing countries including Sri Lanka have benefited from the use of International Standards for Industrial development and International trade. Sri Lanka's position on the ISO Council will enable her to derive the maximum benefits from the International standards activity as well as to develop close contacts with other National Standards Bodies in the world. Market ends negative in the wake of profit taking Some investors cashed in on the gains last week resulting in both indices losing ground. The All Share Price Index lost 14.1 WoW to 497.5 (-2.5% WoW) and the Sensitive Price Index lost 19.6 points WoW to 709.2 (-2.7% WoW). With a net foreign inflow of Rs. 4.2 m, foreign activity as a percentage of total showed a notable decline from 47.9% last week to 13.5%. Overall, activity was slow, with the average daily turnover coming in at Rs. 15.5 m. Slow down in tourist arrivals Govt. to raise US$ 100 m. in
international markets Results for the week Kahawatte IPO - cheap on relative valuation The IPO on Kahawatte Plantations Ltd (KAHA) will open on 8th October 1998. This offer is the second stage of privatisation, where 20% of ordinary shares of KAHA, owned by the Treasury is being divested for the purpose of obtaining a listing in the Colombo Stock Exchange. The offer consists of 4 m ordinary shares of Rs. 10 per share. Despite the difficulties faced by the plantation sector, we advise retail investors to subscribe this issue, purely due to its cheap relative valuation. Sluggishness will continue — JF - HNB Research |
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