Banks help halt Sri Lanka stocks’ winning run

Reuters: Sri Lanka’s main share index ended a four-session winning streak on Thursday as banking shares came under pressure.

Foreign investors sold Commercial Bank of Ceylon for a third day after the resignation of its Chairman was announced.

Commercial Bank of Ceylon edged down 0.3 per cent, resulting in foreign outflow of Rs. 173.4 million ($ 1.52 million).

The main share index slid 0.07 per cent or 4.01 points, to 6,089.38, from a four-week high.    

The Central Bank kept the rupee currency steady by selling around $ 30 million.

 Offshore outflow in the three sessions through Thursday was Rs. 1.17 billion, with more than 90 per cent of that generated by Commercial Bank, traders said.

Commercial Bank, in a statement to the bourse, said Chairman M.J.C. Amarasuriya would resign from the post on Friday.

Analysts and brokers said the foreign outflow appeared to be due to a Europe-based fund selling the shares, though they could not explain its motivation or if the selling was related to the resignation of Amarasuriya.

Net offshore selling year-to-date has been 19.04 billion rupees. Foreigners sold a record 26.4 billion rupees in stocks in 2010.

The day’s turnover was 678.1 million rupees, far below last year’s average of 2.4 billion and this year’s 2.3 billion.

The market has been looking for an easing of credit limits imposed by the Securities and Exchange Commission (SEC), which along with the resignation of the regulator’s Head and Deputy, and a three per cent currency devaluation, have dampened the market.

Any new direction from the new SEC Head on credit limits is expected in January, brokers said.

Last month, brokers, who complained tougher regulation was hurting stock market prices, met President Mahinda Rajapaksa to urge him to intervene in his capacity as Finance Minister to revive the slumping bourse.

The Colombo Stock Exchange has fallen to Asia’s 10th-best performer with a year-to-date loss of 8.24 per cent, after being top in the region until June. It delivered Asia’s best returns in 2009 and 2010. The rupee closed flat at 113.89/90 to the dollar for a 26th straight session with the Central Bank selling around $30 million to defend it, dealers said.

On Wednesday, Treasury Secretary P.B. Jayasundera said Sri Lanka needs flexible exchange rates and tighter monetary policy to curb cheap imports that are putting pressure on the country’s balance of payments.

Yet last week, Central Bank Governor Ajith Nivard Cabraal told Reuters that it can maintain the rupee rate by selling dollars from foreign reserves as it expects large inflows in coming months.

The bank has spent around $ 665 million to keep the exchange rate steady since a three per cent devaluation on 21 November. It spent a net $ 1.36 billion in the first nine months of the year to keep depreciation pressure at bay.