Credit move comes a cropper at CSE

Perhaps exposing brokers and investors who campaigned heavily for relaxed credit rules for their lack of judgment, the Colombo stock market yesterday failed to close on the up, despite enjoying a big burst in early morning trading.

Opening with boosted confidence following the SEC’s relaxed credit rule announcement, the bourse gained sharply by 1.8% or around 80 points within minutes, but the rise fizzled as the day progressed. Eventually the ASI closed down 0.08% and the MPI by 0.67%.

As reported in the Daily FT, concerns expressed by some analysts that easing of credit rules wasn’t the panacea for ills of the Colombo bourse has apparently come right.

However  some brokers took strength from a high Rs. 1.3 billion turnover and trading of 104 million shares.“The new regulations drive turnover” headlined NDB Stockbrokers, in its market report.

It said turnover remained above the Rs. 1 billion mark with relatively high volumes being traded while speculative stocks continued to dominate the market performance. The ASPI gained significantly during early trading, but closed marginally lower mainly as a result of profit taking, which resulted from relatively high activity seen last week.

Arrenga Capital said the early morning upturn (ASI by 1.8% and MPI by 2.4% within 10 minutes of opening) was noticed to be short-lived as the indices from that point saw a gradual decline with activity heavily centred on the speculative counters driven by high level of retail participation.

It said that despite the positive news from SEC, the weak sentiment prevailing in the bourse sent both indices into negative territory after the initial hype at the start of the day.

SC Securities said selling pressure during the latter part of the trading session caused downward pressure on both the indices, resulting in them ending the day in negative territory.

Lanka Securities described the day’s performance as “high level of intraday volatility” soaring nearly 100 points encouraged by the optimistic credit amendments rules and in the latter part the market lost its enthusiasm and ended marginally negative.

Last week’s new addition, Asia Asset Finance, continued its successful run, dragging considerable retail interest as it reached a new high of Rs. 8.7, with 47 million shares traded yesterday. The counter closed the day at Rs. 8.5 up 46.6%, contributing 26% to the day’s turnover.

Arrenga said speculative play was also reported in Environmental Resources Investments as it recorded the second highest turnover contributed by two crossings totalling 1.2 million shares at Rs. 34.

The counter closed at Rs. 34.2 (+1.8%) despite an intra-day peak of Rs. 37.9. The warrants of Environmental Resources Investments [W: 0002, W: 0003 and W: 0006] were active as well, ending the day with mixed results of +0.6%, -1.3% & +0.0% respectively.

Other speculative counters which ended among the top turnover list were HVA Foods (+2.1%), Blue Diamonds [Voting & Non-Voting], Colombo Land (-1.7%) and Panasian Power.

Banking sector heavyweight Commercial Bank was the only blue-chip among the top turnover list. The counter saw a crossing of 452,000 at Rs. 100 as the counter lost -0.1% to close at Rs. 100.

John Keells Holdings continued its losing streak despite being on thin volumes as the counter closed the day at Rs. 162.0 (-1.3%) with only 138,000 shares being traded.

Activity was also prevalent in Tokyo Cement [Non-Voting] where a high level of selling pressure was witnessed in the past few weeks. The counter again touched its 52-week low of Rs. 27.9 and closing at the same price while 718,000 shares were traded.

Reuters reported that market fell as investors exited and ignored the Securities and Exchange Commission’s allowance of greater lending by stockbrokers, which many trading houses had lobbied for as a cure for the slumping bourse.

The SEC on Monday gave stock brokerages greater leeway to extend credit to clients for share purchases, more than doubling the amount of liquidity in the bourse to 8.7 billion rupees.

“It is clear evidence that the credit issue is not the only problem that has dragged the market,” said a stockbroker on condition of anonymity. “The market will further slide as retailers have lost confidence. Unless foreign inflows come, we will see a falling trend despite the SEC extending credit.”

The Colombo bourse is the second-worst performer among Asian countries in 2012 with a 2.47 per cent loss so far. Only Dubai’s benchmark has fared worse.

Foreign investors were net sellers of Rs. 75.6 million worth of shares, extending the year-to-date foreign outflow to 423.1 million after 19.1 billion in 2011.

The index lost 8.5 per cent in 2011 and was Asia’s 10th-best performer after being top in the region until June. It was Asia’s best in 2009 and 2010.

The rupee closed flat at 113.89/90 to the dollar for a 38th straight session since a three per cent devaluation on 21 November, with the Central Bank selling more than $ 30 million to defend it, dealers said.

The bank has spent more than $ 920 million keeping the exchange rate steady since 21 November. It spent a net $ 1.79 billion in the first 10 months of last year to keep depreciation at bay.