Sri Lanka Stock Picks

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Monday, July 11, 2011

Sri Lanka shares at 6-mo lows on margin calls, lack of liquidity

* Brokers' forced selling weighs on index

* Divesified holdings lead the fall

* Rupee ends flat with a state bank intervention

COLOMBO, July 11 (Reuters) - Sri Lankan stocks fell over 2 percent to a six-month low on Monday as margin calls forced sales to settle credit transactions amid low liquidity with large amounts of money locked in private placements and public issues.

Sri Lanka's main share index fell 2.1 percent or 144.39 points to 6,767.6, its lowest close since January 5 and its highest daily fall since March 3 in terms of both percentage and points.

"Brokers were selling as some investors' portfolio have comedown sharply in the recent weeks," a stockbroker said on condition of anonymity. Investors are still allowed to buy on credit depending on
their portfolio. But when their portfolio value declines due to an overall market drop, brokers sell their shares even at a low price to recover credits, brokers said.

Market heavyweight and Sri Lanka's top conglomerate John Keells Holdings fell 2.4 percent, while diversified firm Hayleys closed 4 percent weaker. Since June 1, the index has shed 8.39 percent, mainly due to forced selling in line with the policy of the regulator Securities and Exchange Commission (SEC) to recover credits, aiming to eliminate all credit dealing by end 2011.

The SEC also has said there may be over 30 billion rupees of liquidity locked in private placements and initial public offerings since February this year.

The bourse is down 0.85 percent so far this year. It was the top performer in the Asia-Pacific region in 2010 and 2009 with 96 percent and 125 percent returns, respectively. The day's turnover was 1.88 billion Sri Lanka rupees ($17.2 million), well below last year's average of 2.4 billion and this year's daily average of 2.78 billion.

Net foreign outflow stood at 2.7 million rupees on Monday, and offshore investors have sold 7.31 billion rupees in 2011 after a record outflow of 26.4 billion in 2010. Traded volume was 89.3 million, against a five-day average of 71.5 million. The 30-day and 90-day average trading volumes were 169.2 million and 104 million, respectively. Last year's daily average was 67.9 million. The rupee ended steady at 109.49/50 a dollar as a state bank, through which the central bank usually directs the market, defended the currency by selling the greenback at 109.50 despite heavy importer demand, dealers said.

FACTORS TO WATCH:

- Whether foreign investors will buy shares in large volumes.

- Whether Sri Lanka can achieve an 8.5 pct growth target amid rising global oil prices and inflation.

- The extent of the rupee's appreciation.

source - www.reuters.com