Stock Market Review
Week ending 27th November 1998

The ASPI registered significant gains for the second consecutive week, closing up 5.5% WoW at 571.2. Average daily turnover for the week was Rs 97.8m. Foreign activity although substantial with Rs. 263.5m inflow was only 40.5% of total turnover, due to high retail activity.

Balance of Payments Improvement
The first half balance of payments breakdown from the 1H economic survey of the central bank shows a 29.7% improvement in the deficit from U.S.$ 118m to US$ 83m. There has been a 22% growth in net services income due to growth in port related services. Net private transfers has improved by 14.4%. As a result of this the current account deficit has been reduced by 36.8%, Foreign direct investment has increased by 12.3% in the first half. Private long term borrowing however have caused a negative outflow with a repayments exceeding new borrowings with a net outflow of US$ 43m. against the net inflow of US$ 4m last year. Due to increased NRFC deposits to commercial banks short term capital movement are a net inflow of US$ 135m as opposed to the US$ 11m outflow last year. The very large errors and omissions figure has been an outflow of US$ 89m as against the US$ 117m inflow of last year. With the 1H balance of payments data we have revised down our projection for the 1998 current account deficit from US$ 353.2m to US$ 305.3m due to stronger than expected growth in the services balance and net private transfers. However we have revised down our forecast balance of surplus from US$ 246m to US$ 219.7m due to the lower then expected level of private long term borrowing. Our 1999 Trade deficit is revised up to US$ 1435.1 from US$ 1133.5m due to the aircraft purchase. The current account deficit has been improved by a lesser amount to US $ 503.67m from US$ 258.6m primarily due to the improvement in the service account. The forecast overall balance of payments surplus is revised up from US$ 304 to US$ 435M. This is primarily as a result of an improvement in our expectation for direct investment and increased government long term borrowing as a result of the planned bond issues.

Results for the week:
Kotagala Plantations Ltd (KOTA) released its results for 1HFY3/99. Turnover is down 12.8% to Rs. 461.3m. Loss after tax was Rs. 35.3m compared to profits of Rs. 81.2m for the same period last year.

Aitken Spence Hotel Holdings Ltd (AHUN) released its results for 1HFY3/99. Turnover has increased by 11.2% to Rs. 101.9m. Loss after tax and minority interest has decreased by 5.2% to Rs. 23.1m.

Lanka Lubricants LTD (LLUB) has released it’s results for 3QFY12/98. The cumulative results for the 9M indicate that net turnover is up by 22% YoY to Rs. 1.73bn. PAT for the period has come in at Rs. 410m, up by 103% YOY.

Market to gather momentum
General consensus is that fundamentals in East Asia’s crisis economies have improved. They are not out of the woods yet, but they appear to be on the road to recovery from the 1997-98 cyclical downturn, the most severe in post-war history. The recent equity market rallies are wind-assisted’’ from the favourable global liquidity conditions, interest rate cuts in the US and downward tend seen across Asia bode well for recovering health of equity markets. Part of this we have already seen and in our view the best is yet to come. YTD the CSE has been sidelined by foreign investors with a net outflow of Rs. 1.4bn. mainly due to poor stock liquid. High dividend yield, improved liquidity in the system and low TB yields have prompted investors to increase exposure to the market. We expect profit taking to bring the ASPI down to 550 levels but improved sentiment should take the index near 600 levels in the short to medium term.

—JF HNB Research

Blue Diamond Jewellery to be restructured

The operations of Blue Diamond Jewellery Worldwide Ltd. which has been in the news lately, is being restructured.

In a letter to shareholders, signed by the Chairman Mr. Lalith Kotelawala and Deputy Chairman Mr. Daya Senanayaka it says:

‘’The debt settlement payment to three Banks rescheduled, and the interest burden reduced. The company’s operations have been pruned and the costs reduced.

‘’A modest improvement in sales has been achieved and barring further problems in the market—we foresee a steady improvement in sales.

‘’We are pleased to inform you that we have written to the Colombo Stock Exchange Ltd. and the Securities and Exchange Commission to lift the suspension of trading in the company’s shares, which was imposed at our request.

‘’The investments in Energen Holdings Company Ltd., were declared and reported at the Annual General Meeting on 5th December 1996. The investments are also within the primary objectives and ancillary powers. These investments are approved under our Agreement with the Board of Investments of Sri Lanka.

‘’Lastly, the auditors have issued a letter of even date clarifying the issues related to the Company as at date. The Auditors’ letter dated 19th November and the corrected note to the Accounts (Note 6.2) are attached for your information.

‘’We wish to inform you that the fears that may have been created about ‘’A Going Concern’’ were, in our opinion, premature and unwarranted.

Guardian Investment Trust turnover — Rs. 99.24 m.

Despite the beginning of the down turn in the economy and the Stock Market the Ceylon Guardian Investment Trust a large portfolio holder in Sri Lanka has recorded a turnover of Rs: 99.24 million in fiscal 97/98 up from Rs. 12.09 million in the previous year.

The consolidated turnover with its subsidiary Rubber Investment Trust Ltd., recorded an impressive Rs: 148.26 million. In the previous year it was Rs. 24.92 million.

Israel Paulraj, Chairman of the Company in his review says although the ASP in the Colombo Bourse dropped by 35 per cent from March 31 this year the drop in the market value of the Company’s current investment portfolio was only 26 per cent.

On 6th May 1998 the company paid an interim dividend of 50 per cent. Additionally a final dividend of 15 per cent is being paid to shareholders bringing the total to 65 per cent.

The Company Chairman says subsequent to Carsons Management Services (Pvt) Ltd., taking over the management of the investment portfolio, a change of strategy was implemented whereby your company focused on enhanced returns and value addition to the core investment portfolio. The portfolio has been classified into different categories of shares based on liquidity and yield. With the adoption of this new strategy, several shares with low potential were disposed of, for better management of the portfolio."

Commenting on the market environment, the review states:

East Asian Currency crisis
A normal depreciation was experienced in the Sri Lankan Rupee against the Dollar compared to the currency depreciation in the East Asian region resulting from the currency crisis. As an adverse result of this currency devaluation, the exports from East Asia have become much cheaper which could pose problems of price competitiveness to Sri Lankan exports. Another possible implication is the low level of Foreign Direct Investments (FDI) which could be sourced from these countries.

Money Market
Interest rates on deposits as well as lending declined in the early part of the financial year as a result of the reduction of the Central Bank reserve requirement to 12%. Furthermore, the inflow of foreign funds due to privatisation, remittances from abroad from Sri Lankan workers and foreign currency borrowings by local corporates also helped the interest rates to remain low. Presently, the market is experiencing an upward trend in interest rates and the development of an active long term bond market is expected to help the construction of a long term yield curve.

Stock Market - Present Status
During the current financial year 1998/99, however, indices at the Colombo Stock Exchange tumbled, and currently, the market is witnessing a temporary downturn following the large scale pull-out by foreign investors from the Asian markets due to the prevalent economic uncertainty experienced in the Asian region. Negative sentiments brought by nuclear tests by India and Pakistan and sanctions imposed by the US Government and Japan have further aggravated the market conditions. In fact, the All Share Price Index dropped by 35% from 31st March 1998 to date, while a 33% decline in the market capitalisation was witnessed compared to the Balance Sheet date. Presently, an upward trend in the indices is experienced in the Stock Market and if the current rally is any indication of the future to come it is expected that the Colombo bourse will return to its former buoyant state.

The economic downturn in the Asian economies did indeed have an impact on the global and regional stock markets. This economic uncertainty and its consequences on corporate performances contributed to withdrawal symptoms being displayed by major funds from the stock markets in the region. The Colombo bourse also had its decline due to this reason. This uncertain environment would result in prolonging the recovery of the Asian markets.

IPO’s Rights Issues
During the period under review, the market capitalisation was enhanced by the contribution made by the new IPO’s of the plantations, hotels and finance sector companies. Furthermore, 12 rights issues came up during the period under review contributing to enhance market capitalisation.

The Central Bank's Spot Rates for transactions with Commercial Banks announced on the morning of December 1st, 1998 were as follows:

The approximate middle exchange rates of following currencies calculated on the basis of cross rates quoted by Gulf International Bank, Bahrain as it appeared in Reuters Financial Information System on December 01, 1998 were as follows:

Average rates at which the following currencies were quoted by Commercial Banks in Colombo for Telegraphic Transfers at mid-day on December 01, 1998 were as follows:

Average Weighted Prime Lending Rate (AWRP) and Lowest Prime Rate (LPR)
The Average Weighted Prime Lending Rate (AWPR) during the week ended November 27th, 1998 was 15.4 per cent for all banks. The Lowest Prime Rate among banks during this week was 13.0 per cent.

Average Weighted Deposit Rate of Commercial Banks (AWDR)
The Average Weighted Deposit Rate (AWDR) of Commercial Banks for the month ended October 31st 1998 was 9.2 percent.