Sunday, January 6, 2013

Foreign Activity Dominates Bourse

The bourse on a mix of foreign selling on Hatton National Bank plc and foreign buying and selling on blue chip John keels Holdings plc witnessed a Rs. 418.33 million net foreign inflow (NFI) on Friday, wiping the deficit of a Rs. 122.58 million net foreign outflow (NFO) which it had previously witnessed in the first two days of trading for the year, ie up to Thursday.

Friday’s turnover was Rs. 1.2 billion, with the market indices, namely the ASPI and the S&P SL 20 Index (which replaced the MPI from this year), having had gained by 1.9% and 1.2% to 5,747.71 and 3,121.71 respectively since the beginning of the year.

Market capitalization or shareholder wealth during this period had had increased by 1.9% to Rs. 2,207.8 billion.

A market source told this reporter said that things appeared to be looking better for the bourse, with the message being conveyed to the market that interest rates will fall (see page 33).

A falling interest rate scenario boosts the stock market as investors may consider twice before investing in the fixed income market due to its low returns in such an environment, and would therefore rather look for other avenues of investments such as the bourse to give them a better return.

But this so called transformation into a low interest rate economy is yet to percolate down to the real economy.

Though in recent times Treasury (T) Bills, Bonds, call money and market repo rates have had witnessed contractions, those have yet to be passed through to real interest rates.

Central Bank of Sri Lanka (CBSL) data showed that on a week on week basis, commercial banks’ average weighted prime lending rate (AWPLR),  ie the average borrowing rate that banks charge blue chip borrowers, have had come down by a mere 14 bps to 14.26% as at Friday (see also The Sunday Leader business pages of 23.12.12. and 30.12.12.).

In fact since 30.11.12. to date, the AWPLR  has had gained by 11 bps. In contrast T Bill and Bond yields across all tenures during this period have had dropped by 100 bps or more (see page 33).

Another source said that there is generally a lagged time period before such effects percolate down to real interest rates as well.

He also said that there is a doubt in the market whether the drop in those yields was bona fide.

A high inflationary environment, coupled with market illiquidity as is prevailing in the economy at the present, doesn’t give strength to the belief that the market is shifting towards a low interest rate regime.

Meanwhile the bourse in the first two days of trading for the year witnessed a NFO of Rs. 122.58 million, data filed by John Keells Stockbrokers showed, before this deficit was wiped out on Friday as the aforesaid numbers revealed.

Last year the bourse netted in a NFI of US$ 305 million according to CBSL data.

The bourse opened the year with a marginal Rs. 17.15 million NFO at Wednesday’s (January 2)* trading on the back of “foreign to foreign” trading in Commercial Bank of Ceylon plc (Com Bank), a source said.

It comprised a parcel of 12 million Com Bank shares done at the price levels of between Rs. 103 and Rs. 103.50 a share, he said.

This took turnover up to the Rs. 1.7 billion level, with the benchmark ASPI increasing by 0.72% over the previous day’s close to finish the day at the 5,683.79 level while the  S&P SL 20 index  increased by 0.18% to 3,090.88 points.

Both these indices further increased by 0.82% and 0.43% to 5,730.45 and 3,104.25 points respectively the following day Thursday, on a modest Rs. 518.6 million turnover, where the market witnessed a Rs. 105.43 million NFO.

*Tuesday January 1 was a holiday for the bourse.

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