Stock Market The Forbes ABN AMRO Business Roundup
For the trading week ended Friday 14th of May 1999- Improvement in foreign sentiments during the week
- Announcements
- Decrease in overall tea exports despite an increase in production
- IQ results
- Asian Markets close lower
- Decrease in interest ratesImprovement in foreign sentiments during the weekMarket indicators registered little movement within the week despite an improvement in overall activity levels. Overall benchmark ASPI inched up 0.7 points within the week to close at 543.02, while blue-chip weighted MPI registered a noteworthy increase of 5.4 points to close at 881.26. A well come rebound in activity levels, signalled an improvement in foreign sentiments. Foreign activity accounted for 51% of turnover resulting in a net outflow of Rs. 73.8 m.
Announcements - Aitken Spence Hotels Holdings declared a 1 for 6 bonus issue, whilst Richard Pieris Exports and Richard Pieris announced tax free first and final dividend of 25% and 27% respectively. Further CSF announced their intentions to introduce T+1 settlement basis for debt securities shortly. This swifter settlement system should result in saving the investor the opportunity cost of interest foregone during the 6 days lead-time prevailing under the present T+6 system.
Decrease in overall tea exports despite an increase in production — At the end of the first quarter tea industry registered a 12% decline in exports despite a 24% increase in overall production levels. Further average tea prices registered a marked decrease contributed by lower quality coupled with reduced global demand. These depressed market situations were reflected in the stock market performance of the sector as plantations sector index dropped by 13% during ‘99 trading at a discount greater than 10% on PER multiples. However despite this sell down we believes it’s still premature to overweight the sector, as the earnings quality is not yet improved.
1Q results-Commercial Bank and Hatton National Bank were amongst the companies that released their 1st quarter results. Commercial Bank registered a 17% drop in net profit mainly due to increased interest payments and overheads. However Hatton National Bank reported an 8% increase in net profits to Rs. 150.8 m, but considering a 45% decrease in provision and slightly lower tax rate accounted within the period clouded the picture. These lowered earning levels coupled with a possible rise in personnel costs as a result of ongoing union action could reflect negatively on the overall sector performance.
Asian Markets close lower - Asia’s largest stock markets closed lower despite an overnight surge in Wall Street. This was mainly due to current anxieties over Japanese corporate earnings and the planned sale of a number of bluchips by the government in Hong Kong.
Decrease in interest rates - The 3,6 and 12 months T-bill interest rates moved down from 11.84%, 11.98% and 12.58% last week to 11.74%, 11.96% and 12.56%.
Bartleet’s Weekly Market Commentary
The ASI fluctuated within a narrow margin closing the week at 543 levels, up 0.7 points WoW. The MPI, representing twenty-five selected stocks, too followed a similar trend and hence moved up by 5.5 points to close at 881 levels. The highlight of the week’s trading was the artificially boosted turnover on Wednesday, which saw 3.027 Mn shares of Metropolitan Resource Holdings changing hands @ Rs. 25.00. However turnover averaged above Rs. 50 Mn during the rest of the week. Foreign innovators dominated the week’s turnover accounting for 87% of purchases and 55% of sales thus recording a net inflow of Rs. 92.6 Mn. The heavily traded stocks include Asian Hotels, Dockyard, Lubricants, Lanka Ceramics, Nations Trust Bank, Sampath, Serendib Hotels, DFCC and Grain Elevators.
Even though foreign funds continue to flow into regional markets the Colombo Bourse has been overlooked by the majority except at times when selective stocks are being bought for speculative purposes. However, a recovery in foreign interest was witnessed within the week, which we expect to gradually increase and hence give a much-awaited direction to domestic investors.
Despite strong resilience of the economy in posing a relatively healthy economic growth of 4.7% in 1998 in the wake of rising disturbances in the global economy (as opposed to 2.8% growth in developing countries and 2.5% growth in the world economy), concerns have been expressed by many economists regarding the slow growth in 1999 and the rising budget deficit. It has been revealed that import prices, which saw a downtrend during 1998, are gradually picking up while export prices continue to fall (mainly tea and rubber) significantly. This could widen the current account deficit thus reversing the downtrend seen over the past few years. The escalating defence expenditure, which rose to 9% of GDP in 1998, has widened the budget deficit and a similar trend could continue unless efficient fiscal measures are imposed. Given a situation where the economy is facing fiscal problems such as decelerating tax revenue, rising wage and pension costs, high defence expenditure, high interest cost and crowding out effect etc. prompt action has to be taken to remedy the growing disparities between revenue sources and government expenditure.
We believe that the government’s policy to bring down interest rate, with the intention of boosting investments, conflicts with the present economic environment. We foresee a possible expansion in the current account deficit as well as a high budget deficit during 1999. This in turn would push the interest rate up invariably expanding the crowding out effect, which indicate high inflation and low investments.