Sunday, March 3, 2019

ASPI stumbles below 5,800 to lowest in over 5-years

The Bourse ended the week on a negative note as the ASPI decreased by 83.41 points (or -1.43%) to close at 5,754.31 points, while the S&P SL20 Index also decreased by 109.43 points (or -3.68%) to close at 2,868.04 points. JKH was the highest contributor to the week’s turnover value, contributing LKR 1.09Bn or 28.73% of total turnover value. Hemas Holdings followed suit, accounting for 10.53% of turnover (value of LKR 0.40Bn) while Dialog Axiata contributed LKR 0.32Bn to account for 8.55% of the week’s turnover. Total turnover value amounted to LKR 3.79Bn (cf. last week’s value of LKR 2.20Bn), while daily average turnover value amounted to LKR 0.76Bn(-38.20% W-o-W) compared to last week’s average of LKR 0.55Bn. Market capitalization meanwhile, decreased by 1.43% W-o-W (or LKR 38.98Bn) to LKR 2,689.61Bn cf. LKR 2,728.60Bn last week. Liquidity (in Value Terms).

The Diversified sector was the highest contributor to the week’s total turnover value, accounting for 43.61% (or LKR 1.65Bn) of market turnover. Sector turnover was driven primarily by JKH, Hemas Holdings & Melstacorp which accounted for 93.56% of the sector’s total turnover.

The Banks, Finance & Insurance sector meanwhile accounted for 28.81% (or LKR 1.09Bn) of the total turnover value, with turnover driven primarily by Commercial Bank, Sampath Bank & NDB Bank which accounted for 68.44% of the sector turnover. The Telecom sector was also amongst the top sectorial contributors, contributing 8.56%(or LKR 0.32) of the total turnover, where sector turnover was primarily driven by Dialog Axiata which accounted for 99.90% of the sector turnover. Liquidity (in Volume Terms).

| The Telecom sector dominated the market in terms of share volume, accounting for 28.78% (or 34.51Mn shares) of total volume, with a value contribution of LKR 0.32Bn. The Diversified sector followed suit, adding 20.75% to total turnover volume as 24.88Mn shares were exchanged. The sector’s volume accounted for LKR 1.65Bn of total market turnover value. The Hotels & Travels sector meanwhile, contributed 15.53Mn shares (or 12.95%), amounting to LKR 0.16 Bn. Top Gainers & Losers.

Dunamis Capital was the week’s highest price gainer; increasing 28.1% W-o-W from LKR28.80 to LKR39.60 while Tess Agro[NV](+25.0% W-o-W), Lanka Ventures (+22.4% W-o-W) and Samson International (+17.4% W-o-W) were also amongst the top gainers. SMB Leasing[NV] Hotel were the week’s highest price loser; declining 33.3% W-o-W to close at LKR0.20 while SMB Leasing(-20.0% W-o-W), Malwatte Plantations (-17.4% W-o-W) and Radient Gems(-16.3% W-o-W) were also amongst the top losers over the week.

Point of View

Sri Lankan equities hit a 5-year low on Friday to close at its lowest value since Nov 2013(5,754.31 points), ahead of the Budget presentation on Tuesday. Negative investor sentiment continued to dominate this week and the ASPI pushed past 5800 by dropping 83.4 points (1.4% W-o-W for the week) to drag the YTD loss on Sri Lankan equities down to 4.9%. The Broad-share index fell for 8 consecutive sessions, losing 37.7 points by Wednesday but snapped a losing streak on Thursday to close in the green with a 16.3 point gain as market activity improved. However, the recovery was short lived as the ASPI recorded its largest daily loss for 2019 with a further 62.0 point dip on Friday.

Selling pressure in key banking sector stocks such as Commercial Bank (-3.8% W-o-W), HNB (-4.5% W-o-W) and Sampath Bank (-15.3% W-o-W) contributed to the decline while the foreign sell-off in heavy-weight Dialog (-3.0% W-o-W) also weighed down the broad-share index. Foreign investors however, were net buyers this week with renewed foreign interest in JKH and its leisure arm, Keells Hotels, resulting in a net foreign inflow of Rs. 0.50Bn for the week (cf. Rs. 0.23Bn outflow last week). Despite damped sentiments, activity levels on the Colombo Bourse improved this week with the average daily turnover for the week increasing to Rs. 0.76Bn (+38% W-o-W) relative to Rs. 0.55Bn last week, supported by participation from HNI and Institutional investors. Large parcels of Hemas Holdings (21% of crossings) and Banking, Finance & Insurance sector stocks (31% of crossings) accounted for the majority of the week’s crossings. Markets in the week ahead are likely to look for direction following the Budget reading on 5th March. Staff-Level Agreement Reached on 5th EFF Review The IMF this week reached a staff level agreement with Sri Lanka to extend its $1.5Bn EFF loan programme for an additional year. The IMF added that it ‘welcomes’ the Sri Lanka authorities’ on going efforts to bring their economic reform back on track following the political turmoil in late 2018 and noted that the remaining loan disbursements are to be evenly spread over this period, giving the country more time to complete the economic reform agenda. The IMF Board is also expected to consider Sri Lanka’s request to complete the 5th review in May’19 which was previously delayed to due to the political crisis last year.

The IMF noted though that the political turmoil of late 2018 exacerbated tight market conditions and led Sri Lanka to miss the foreign exchange reserve target ‘by a sizeable margin’ while the primary fiscal surplus also fell short of targets in December. The Group stated however that fiscal consolidation and state-owned enterprise (SOE) reforms remain critical to improve Sri Lanka’s debt sustainability position.

The Sri Lankan authorities’ commitment to raise the primary surplus to 1.5% of GDP and lower the fiscal deficit to 3.5% of GDP by 2020 was also welcomed by the IMF. However, the Group added that the Government needs to proceed with energy pricing reforms and restructuring plans for Sri Lankan Airlines as ensuring transparency and cost-efficiency of large SOEs is critical in protecting fiscal sustainability. The IMF highlighted the CBSL’s commitment to rebuild foreign reserves while maintaining exchange rate flexibility and encouraged the CBSL to maintain a prudent monetary policy.

The Group also advised the CBSL to finalize the Monetary Law Act while recognizing the progress made in the Anti-Money Laundering and Countering the Financing of Terrorism regime. The IMF expects real GDP growth to improve to ~3.5% in 2019, from 3% in 2018 while inflation is projected to reach 4.5% in 2019.

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