CB lifts margin limits on banks but bourse’s slide persists

Despite the Central Bank relaxing margin limits rule for commercial banks, the Colombo stock market continued its miserable bearish run, extending losses amidst low activity levels.

The benchmark All Share Index lost 0.5% whilst the market’s overall value dipped by Rs. 11 billion yesterday. Turnover was Rs. 537.6 million, largely boosted by deals on premier blue chip JKH and a few others.

Analysts opined investors and brokers weren’t overly excited by the Central Bank decision to give freedom for commercial banks to determine their own respective exposure to margin trading. The Central Bank ordered commercial bank directors to set prudent internal risk limits.  Stockbrokers during their meeting with President Mahinda Rajapaksa early this month wanted margin trading exposure of commercial banks to be increased to 7.5% from 5%.

Some analysts linked the bearish sentiments and low activity to the onset of holiday season.

Total volume was 18.7 million shares, against a five-day average of 21.1 million. The 30-day and 90-day average trading volumes were 47.7 million and 93.8 million. Last year’s daily average was 67.9 million.

Reuters reported analysts as saying that credit for share buying has been a concern since the Securities and Exchange Commission curbed the amount brokerages could extend, although brokers expect the regulator under a new Chief to accommodate more lending.

Market heavyweight John Keells Holdings PLC fell 1.9 per cent to Rs. 170.10 and Aitken Spence PLC fell 0.99 per cent to Rs. 110.

The bourse saw a net foreign inflow of Rs. 59.6 million on Monday, and foreign investors have sold 18.1 billion thus far in 2011, and a record 26.4 billion in 2010.

The Colombo Stock Exchange is Asia’s 11th-best performer with a year-to-date loss of 11.7 per cent after being at the top until June. It delivered Asia’s best returns in 2009 and 2010.

The rupee meanwhile closed flat at 113.89/90 rupees a dollar for a 19th day despite dollar demand, as the Central Bank spent $ 50 million defending it, dealers said.

The bank has spent around $ 490 million to hold the exchange rate steady since a three per cent devaluation on 21 November. It spent almost $ 2 billion this year until the end of September holding back depreciation pressure.

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