Tuesday, July 26, 2011

CBSL policy rates review would trigger short term correction-NAMAL

By Jithendra Antonio

 A review of policy rates by Central Bank of Sri Lanka (CBSL) impacting the risk free rate could trigger a short term-correction in the Colombo Stock Market, top fund manager National Asset Management Ltd (NAMAL) outlined. Forecasting the future outlook for Sri Lanka’s stock market and economy in the lately published annual review of Lanka’s only listed closed end fund Namal Acuity Value Fund (NAVF), investment managers of the company believe the All Share Price Index (ASPI) could face some near term volatility in first half of financial year 2011, having posted significant gains over the years.

 “The pipeline of new IPO’s estimated to be over 40 to 50 in the next 12 months, together with many large rights issues by listed firms will put a dampener on the overall liquidity condition of the market in the near term“ NAMAL notes in its review. However, they anticipate that the breadth of the market will continue to expand rapidly, with more companies being listed, thus increasing the market capitalization of the ASPI in the medium term.

 “We are bullish on the long term prospects of Sri Lankan equities.”

 They further highlight that with market consensus of over 25% earnings growth in Financial Year 2011 for listed companies, the market has already priced in an appropriate amount for economic growth and risk. 

“ASPI is thus fairly valued in line with its regional peers both in terms of 2011 and 2012 earnings multiples.”

 Accordingly, having gained almost 225% from extremely low valuations since end of the war, Sri Lanka, like most other global equity markets will experience a correction along the way.

 “This short term volatility may provide us with appealing entry points, if valuations drop to attractive levels for the equity prices to reflect underlying economic growth potential, in line with our expectations as discussed above.”

 While foreign institutional investors have been net sellers over the last two years, NAMAL says that foreigners too would return, once the valuation signals improve.

 “We are also of the same view of the bond market. We believe that the demand for Long Term treasury securities would pick up in the latter part of the year, and the yield curve would invert.” NAMAL outlines. 

As value investors, NAMAL believes that the market has already priced in an appropriate amount of economic growth and risk at current levels, having risen sharply since 2009.

 “Thus we continue to focus on identifying investments that are attractively valued, on an individual basis, which could outperform market returns in the long run” NAMAL highlights adding that they also look at opportunities to exit from counters that are expensive relative to their underlying value.

“We see future potential in sectors such as Agriculture, Health Care, Retail Foods, Financial and Infrastructure Services.”

 The review notes that Sri Lanka has been successful in weathering the global economic slowdown, which was benefited by the end of the conflict that led to strong domestic consumption and government expenditure in infrastructure.

 “The Service sector too gained impetus with the revival of tourism and related industries, while robust macroeconomic data and fiscal indicators have lent support to equity valuations.”

source - www.dailymirror.lk

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