Sri Lankan equities unmoved by global equity sell-off | Daily News

Sri Lankan equities unmoved by global equity sell-off

The Bourse ended on a mixed note this week as the ASPI increased by 51.83 points (or +0.79%) to close at 6,572.29 points, while the S&P SL20 Index decreased by 21.77 points (or -0.58%) to close at 3,730.18 points.

Turnover and market capitalization

Janashakthi Insurance was the highest contributor to the week’s turnover value, contributing LKR0.66Bn or 18.42% of total turnover value.

Softlogic followed suit, accounting for 14.31% of turnover (value of LKR0.52Bn) while Commercial Bank[NV] contributed LKR0.36Bn to account for 9.98% of the week’s turnover.

Total turnover value amounted to LKR3.60Bn (cf. last week’s value of LKR3.39Bn), while daily average turnover value amounted to LKR0.90Bn (+6.31% W-o-W) compared to last week’s average of LKR 0.85Bn.

Market capitalization meanwhile, increased by 0.85% W-o-W (or LKR 25.39Bn) to LKR 3,008.85Bn cf. LKR 2,983.46Bn last week.

Liquidity (in value terms)

The Banking, Finance & Insurance Sector was the highest contributor to the week’s total turnover value, accounting for 51.46% (or LKR 1.85Bn) of market turnover.

Sector turnover was driven primarily by Janashakthi Insurance, Commercial Bank[NV], Orient Finance, Sampath Bank & Commercial Bank which accounted for 73.35% of the sector’s total turnover.

The Diversified Sector meanwhile accounted for 25.53% (or LKR 0.92Bn) of the total turnover value with turnover driven primarily by Softlogic Holdings & JKH which accounted for 85.62% of the sector turnover.

The Beverage, Food & Tobacco Sector was also amongst the top sectorial contributors, contributing 6.77% (or LKR 0.24Bn) to the market driven by Cold Stores & Lion Brewery which accounted for 87.94% of the sector turnover.

Liquidity (in volume terms)

The Banking, Finance & Insurance sector dominated the market in terms of share volume, accounting for 39.43% (or 73.85Mn shares) of total volume, with a value contribution of LKR 1.85Bn.

The Diversified Sector followed suit, adding 26.84% to total turnover volume as 50.27Mn shares were exchanged.

The sector’s volume accounted for LKR0.92Bn of total market turnover value. The Construction and Engineering Sector meanwhile, contributed 14.10Mn shares (or 7.52%), amounting to LKR0.16Bn.

Top gainers and losers

Swarnamahal Finance was the week’s highest price gainer; increasing 200.0% W-o-W from LKR 0.70 to LKR 2.10. PC Pharma gained 100.0% W-o-W to close at LKR0.20.

Blue Diamonds[NV](+66.7% W-o-W) and Adam Capital (+60.0% W-o-W) were also amongst the gainers.

Office Equipment was the week’s highest price loser, declining 18.9% W-o-W to close at LKR55.00 while Citrus Hikkaduwa (-16.0% W-o-W),Samson International (-14.7% W-o-W),Colombo Trust(-13.7% W-o-W) were also amongst the top losers over the week.

Foreign investors closed the week in a net buying position with total net inflows amounting to LKR 0.73Bn relative to last week’s total net inflow of LKR 0.26Bn (+182.1% W-o-W).

Total foreign purchases increased by 48.7% W-o-W to LKR 1.55Bn from last week’s value of LKR 1.04Bn, while total foreign sales amounted to LKR 0.82Bn relative to LKR 0.78Bn recorded last week (+4.67% W-o-W).

In terms of volume Softlogic Holdings & LVL Energy led foreign purchases while Anilana Hotels & Lankem Developments led foreign sales.

In terms of value Softlogic Holdings & JKH led foreign purchases while Janashakthi Insurance & Hemas Holdings led foreign sales.

Point of view

Equity markets remained in positive territory yet again this week with the broad-share ASPI recording W-o-W gains for the third consecutive week.

Despite a 13.2 point loss early in the week, the ASPI rebounded sharply on Thursday and Friday (by 65 points) to close the week ~52 points higher.

A strong come-back by Retailers on the back of last week’s strategic sale of JINS General Insurance to Global giant Allianz along with a rebound in Foreign interest (net foreign purchases increased 182% W-o-W to record the 3rd highest net foreign position so far this year) helped the Index close comfortably above the key 6500-mark. Gains on the ASPI stood in stark contrast to peer EM/FM equities, which recorded six consecutive days of losses as the global stock rout continued. Global equity markets have tumbled since Monday as US stocks crashed (from their nearly nine year bull run) on concerns of rising inflation and higher bond yields triggered by positive wage data which showed wages growing at its fastest pace in over 81/2 years.

Ten-year U.S. Treasury yields - a broad gauge of inflation expectations- rose to a 4-year high, highlighting investor fears that the synchronized recovery in US and EU would prompt the US Fed to raise rates at a faster than anticipated pace in order to rein inflation pressure.

Domestic equities however, have remained largely immune to Global market developments and markets in the week ahead are likely to seek direction both from the outcome of the LG elections and the CBSL’s first monetary policy statement for the year.

Initial earnings negative; fitch retains rating

Initial corporate earnings of the Dec’17 quarter have been largely negative, with ~66% of the 47 companies who have reported results so far recording Y-o-Y declines in earnings.

While the overall direction of the total corporate earnings is difficult to gauge at this early stage (only 16% of the total market has reported results so far), JKH’s (a broad proxy for the overall market) 13% Y-o-Y decline in earnings implies that earnings growth this quarter could potentially be negative.

Nevertheless, Banks have yet to report their earnings and the direction of this will be crucial in determining the overall direction of market earnings for the quarter as Banks typically account for ~40% of total market earnings (Diversified account for ~16%).

Fitch Ratings meanwhile retained its B+ (Stable Outlook) on Sri Lanka citing the revised policy framework. The ratings agency added that policies aimed at fiscal consolidation along with a more disciplined monetary stance under the framework of IMF’s three-year programme have improved Sri Lanka's policy coherence and credibility.

Fitch estimates that although 2017 GDP growth (3.9% Y-o-Y) is likely to fall short of its original forecast due to weather-related supply disruptions, growth should stabilise at ~ 5% in 2018/19. Fitch added though that Sri Lanka's external debt service outlook remains challenging over 2019-22 as external debt service payments total ~$15Bn cf. current reserve levels of $7.7Bn. The Group noted that although the expected approval of the liability management bill in 2018 should allow for smoother debt payments, the scale of the external refinancing creates potential vulnerabilities especially in the context of expected monetary tightening in developed markets.


 

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