Foreigners Uplift Bourse, Fall Has Bottomed Out

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Foreigners Uplift Bourse, Fall Has Bottomed Out

Post by Admin on Sun Jun 09, 2013 10:30 pm

Different reasons were given by stockbrokers in regard to the vicissitudes of the stock market, where it has fallen week on week (WoW), despite ‘strong’ foreign buying on selected blue chip stocks.

One said it was due to alleged price manipulation of blue chip JKH by certain miscreants who had taken the price of this stock artificially up on the back of foreign interest and then had dumped it.

The share price of JKH on Thursday fell by Rs 6.20 to Rs 273.20 over its previous day’s close. The following day Friday it followed suit by falling by another Rs 5, a source alleged, while two other index heavy stocks, namely Tobacco and Caltex also fell.

“It is however not foreigners who are fooled by this price manipulation of JKH, but locals,” the source said. JKH is considered as the trendsetter in the market, he said. When it falls, then others follow suit, he said.

Another source however said that the fall of JKH was due to profit taking by retailers.

Penny Stocks

However, these alleged manipulators who previously played on penny stocks, have withdrawn their interest in second tier stocks at the present, a source said.
Another attributed the fall in the bourse due to a correction. “I don’t think the bourse can fall by more than another 50 points,” he said on Thursday, after it (ASPI) fell by 50.46 points (0.79%) on that day, whilst falling by another 64.95 points (1.02%), according to CSE data, on Friday. It has now bottomed out, the source said.
On the previous day Thursday, the fall was due to the drop in prices of certain index heavy stocks, which had also been the case in the past few days, whilst continuing in the same vein on Friday, he said.
On Thursday, it was specifically due to the fall of index heavy JKH, CTC and Caltex, which was also the reason for its fall on Friday (June 7), the source said.

Storm In A Teacup

In the case of CTC, its Thursday’s depression was caused by the decline in the price of only a few shares, he said. Such is the weight that such stocks have on market indices, the source said.

There is however hardly any day trades taking place. Day trades don’t occur in a falling market, he said.

But foreign interest in the bourse is strong and visible, that’s the silver lining, the source said.

The bourse since the beginning of the year and up to Thursday (June 6) has seen a net foreign inflow of Rs 15.3 billion. Even on the following day Friday, foreign buying was visible, this time in Cargills and Commercial Bank, the source said. Friday’s foreign inflow figures were not immediately available.

And since the beginning of the year (i.e., from 31.12.12.) and up to Friday, the ASPI has grown by 11.8% to 6,307.43 points and the S&P SL 20 Index by 15.1% to 3,550.47 points, according to CSE data. Meanwhile shareholder wealth (market capitalization) since 31.12.12.and up to Friday has had grown by 11.7% to Rs 2,422.1 billion.

However, WoW and Up to Friday, the ASPI has fallen by 2.4% and the S&P SL 20 Index by 2.6%. Meanwhile, market capitalization (shareholder wealth) WoW has had fallen by 2.4%.

And from 23.5.13 (Friday, May 24 was a Vesak Poya holiday for the bourse) to Friday (June 7), the ASPI has had declined by 2.8% and the S&P SL 20 Index by 3.2%, while market capitalization in the review period has had fallen by 2.8%.

Foreign Funds

But foreign funds are yet looking at the bourse. They are bullish about the Sri Lankan market, the source said. They are looking at selected, index heavy blue chip stocks to make their investments, the source said. That’s what’s driving the market.

The play is on the blue chips, not on the penny stocks, he said.

Corruption is not an issue as far as foreign investors are concerned, corruption is a worldwide phenomenon, the source said. The low interest rate regime prevailing in First World economies is another reason for investment funds to seek after markets such as Sri Lanka, he said. Because of them the market is bullish.

The locals however have a different set of interest when they look at the market, the source further said. They look at the market vis-à-vis the returns they may get from the fixed income market, he said.

Local retailers are however out of the market, the source said. There is no interest in the market for penny stocks. Trading is not taking place.

“We however don’t see the momentum which was there in the market in the latter part of 2009 as well as in 2010 and 2011, which were then largely driven by penny stocks, the source said.

1Q Performance

While it’s true that the blue chips didn’t have a great first quarter (1Q) in the current year, it’s however too early to comment on their performance for the rest of the year, he said. Taking the 1Q performance and extrapolating it for the rest of the year is wrong, the source said.

But another source said that the recent hike in electricity rates was going to impinge upon corporate earnings. The source also said that declining gold prices were also going to hit banks, which have an exposure to the pawning market.

Recent foreign investments however have a focus on a couple of blue chip banks. On Thursday it also centred round Commercial Bank and HNB, he said.

But in the fixed income market, interest rates have had come down by a few 100 basis points, the source said. However, the question is whether the interest rates have had come down naturally or artificially, he said. If interest rates are kept artificially low it’s not sustainable, sooner or later the lid will come off, the source said.

The issue is whether inflation is really coming down, even the IMF has raised concerns over the same, the source said.

High inflation is a dampener for interest rates to come down, because the fixed income market, mainly dominated by banks will then try to offer higher interest rates with a premium over inflation in order to induce the investor in to the fixed income market. And a high interest rate environment is also a stumbling block to investments due to higher borrowing costs, similar to a commodity in the real economy becoming too expensive to the consumer, thereby impeding investments.

Further, a high inflationary regime hits the poor and the fixed income earner the hardest.

source - sunday leader

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