Stocks up amid hopes of political stability

„ASPI and S&P SL20 make significant gains; turnover hits nine-week high „Analysts say up-trend likely to be short-lived amid worsening economic crisis

The turnover at Colombo bourse yesterday hit a nine-week-high indicating a marked improvement in investor confidence following the two parliamentary votes which showed the country is moving towards political stability. The All Share Price Index (ASPI) was up by 359.24 points or 4.44 percent to 8,457.65, recording its biggest single-day gain since April 27, while the more liquid S&P SL20 index rose by 147.50 points or 5.54 percent to close at2,809.81.

The market turnover reached a nineweek high of Rs.2.75 billion yesterday on the back of broad-based retail and high net-worth investor buying.

“Today, we saw some improvement on the political front with the two parliamentary votes, which indicated we are moving towards political stability as the new government led by Prime Minister Ranil Wickremesinghe seems to be gradually gaining the support of key parliamentary groups.

These developments are providing some level of confidence to investors, which resulted in an uptrend in market performance today,” First Capital Research (FCR) Head of Research Dimantha Mathew told Mirror Business.

However, FCR and other market analysis believe that recent uptrend seen in the market permanence would be short-lived with the impact of the on-going economic crisis on corporate earnings combined with the current high interest rate regime.

“We think this rebound cannot be sustained, because the return you get on fixed income assets cannot be simply matched through equities. Once June quarter corporate earnings start to come in around August, we would see that finance cost would have tripled, demand for product and services would have drastically dropped while manufacturing firms would have run into issues in maintaining production levels,” Mathew elaborated.

The ASPI yesterday opened trading on a positive note, breaching the 8,300 level with a sharp gap-up of 217 points and trended towards the 8,500 level as investors continued bargain buying, capitalising on the recent sell-off. After touching an intra-day high of 8,498, the index stabilised in the closing hour and eventually ended at 8,458.

Expolanka contributed to Rs.851 million to the market turnover yesterday followed by Browns Investments, LOLC Finance , Softlogic Life Insurance and Softlogic Capital.

Sector wise, insurance stocks outperformed other stocks yesterday. So far during the year, insurance sector remained the most resilient recording only 8.1 percent decline while other sectors declined by double digits. Meanwhile, bank, food beverage & tobacco and capital good stocks have seen around 30 percent decline in value so far during the year.

Foreigners sold Rs.56 million worth stocks on net basis yesterday. So far during the year, the net foreign outflow has reached Rs.1.1 billion in contrast to the trend seen during first quarter of the year when foreigners became net buyers. As of yesterday, CSE remained one of the worst- performing equity markets in the world recording 30.82 percent decline in its key index, ASPI.

FCR expects the ASPI to stabilize around 9000 points by end of this year.(nf)