Friday, February 3, 2012

CB gives fresh boost to CSE

■Foreign-owned firms allowed to do margin providing

■Slide at Colombo Bourse continues though net foreign inflow a redeemer

The Colombo stock market continued its slide, down over 7% year-to-date, whilst the Central Bank yesterday gave a fresh boost by allowing foreign owned firms to do margin providing for investors.

The move to permit foreign firms (registered with the SEC) is despite over 30 local companies already providing the same service.

The Central Bank said the move would “help develop the business of margin providing, and also increase market activity by improving the access to finance for investors”.

There were mixed reactions to the new move. Some analysts said it would benefit broking firms with foreign partners as they were previously barred from engaging in margin providing as well as  encourage more brokers to look outside for money. “Entry of foreigners will improve the fund base as well as offer competitive rates to investors,” they added. 

“The market can have a lower cost of funds and it will increase the trading volume and turnover,” TKS Securities CEO Hussain Gani was quoted as saying by Reuters.

However, other analysts opined the move would marginalise the local firms whilst the local investor base has been fast eroding with the market’s downfall, hence it won’t have a major impact to boost the CSE.

However this is the second fillip by the Central Bank to boost the Bourse after it lifted limits on banks on their lending exposure to investment in securities.

One observer said that the Central Bank move was more to do with shoring up foreign inflow to defend the exchange rate rather than stimulate the depressed stock market.

Despite relaxed broker credit rules (though brokers have opposed the internal formula applied by the SEC) and previous Central Bank support, the Colombo Bourse continues to struggle amidst lack of confidence, regulatory issues and upward pressure on interest rates as well liquidity issues for some of the major players.

Yesterday the market fell more than 1%, erasing Rs. 28 billion ($ 245.83 million) of value, a day ahead of the Central Bank’s monetary policy announcement and expected International Monetary Fund comments on the economy.

Retail investors, meanwhile, booked profits to settle debts after the regulator suspended trading of warrants in Environmental Resources Investment PLC, which fell 70.91 per cent to Rs. 1.60.

The main share index ended 1.35 per cent or 76.84 points weaker at 5,605.49, lowest since 26 January.
“With the suspension of Environmental Resources Investment, many retail traders had to sell to settle margin calls due to their portfolio coming down sharply,” a stockbroker on condition of anonymity had told Reuters.

Analysts said institutional investors are worried about a possible rise in interest rates, depreciation in the rupee and Sri Lanka turning down the remaining $ 800 million in disbursements from a $ 2.6 billion International Monetary Fund loan.

Foreign investors were net buyers of Rs. 116.2 million on Thursday, extending the net foreign buying to Rs. 807.3 million worth of shares so far this year, after net outflows of 19.1 billion last year.

Conglomerate John Keells Holdings PLC, which saw foreign buying of 480,054 shares, fell 1.47 per cent to Rs. 167.50. Last week it posted a 56 per cent gain in its December quarter earnings.

Sri Lanka’s Bourse is the worst performer among Asian markets with a 7.72 per cent loss so far this year. It was 10th-best in 2011, after being on top in 2009 and 2010.

The day’s turnover was Rs. 970.1 million, well below last year’s average of 2.3 billion. Volume was 47.7 million shares. Last year’s daily average was a record 102.7 million.

The rupee closed flat at 113.89/90 against the dollar for the 49th straight session since a 21 November devaluation, with the Central Bank selling around $ 28 million to defend it, dealers said.

The bank has spent more than $ 1.15 billion keeping the exchange rate steady since 21 November. It spent a net $ 1.79 billion in the first 10 months of last year to keep depreciation at bay.

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