Foreign and local investor play shifts to HNB

• Franklin Templeton, Indra Silva figure among institutional and high net worth buying into HNB
• Year-to-date net foreign outflow tops Rs. 1 b mark but net inflow so far in February
• JKH, Sampath, Commercial and LOLC draw foreign buying
• Local retailers continue to be content with fixed income options; brokers tip equities to fare better

 If Commercial Bank figured as most sought after by investors in recent weeks, HNB last week became the active play by foreign and locals, whilst overall sentiment remained intact despite year-to-date net foreign outflow topping Rs. 1 billion mark.

The second largest private sector bank HNB saw nearly 11 million of its voting shares traded for Rs. 1.56 billion. Its share price closed up Rs. 4.10 to Rs. 149.10 whilst it reached an intra-week high of Rs. 149.90.

Wednesday and Friday each saw over four million shares of HNB traded, with the bulk of the selling coming from foreign investors, whilst on Thursday two million shares changed hands. HNB finished the week with foreign holding dipping by 6.5 million shares.

Whilst SBI Venture Holdings and Janus figured among sellers, as in the case of Commercial Bank in previous weeks, what was noteworthy was the buying into HNB by investment guru Mark Mobius-linked Franklin Templeton Fund, which collected 3.4 million shares worth Rs. 500 million on Wednesday. The latter in recent weeks had invested nearly Rs. 2 billion into Commercial Bank.

Also joining the buying side for HNB was Indra Silva, collecting three million HNB shares for Rs. 429 million on Friday. He too figured on the buying side of Commercial previously. Several other high net worth investors and institutional funds picked up HNB shares.

The Captains, who dominated trading in recent weeks, remained active in the Banking sector including NDB last week, in addition to JKH collecting available quantities and also figuring on the selling side in certain stocks.

ERI warrants saw foreign-to-foreign deals worth Rs. 290 million on Friday with existing shareholder Caledonian fund on the buying side and Lionhart continuing to sell.

The year-to-date net foreign outflow stood at Rs. 1.1 billion last year, largely on account of HNB which saw net selling of Rs. 977 million. Continued bullishness on banking stocks by Franklin Templeton and Citigroup funds along with fresh collection from existing and new foreign investors of shares in JKH (Rs. 200 million), Sampath (Rs. 162 million), Commercial Bank (Rs. 123 million) and LOLC (Rs. 95 million), as per data of Acuity Stockbrokers, augurs well for the market.

DNH Financial said notwithstanding year-to-date outflow, in February so far there has been net inflow of Rs. 212 million. “This is highly encouraging given fact that other frontier/emerging markets such as Pakistan and Vietnam have recorded net foreign outflows on a MTD basis,” it added.

“With the global appetite for equities re-emerging, we expect international asset managers to re-focus on frontier markets such as Sri Lanka, which is expected to record robust economic and corporate EPS growth. However, we expect foreign buying to be limited to blue chip counters, particularly high growth stocks in the Diversified, Banking, F&B and Hotel sectors,” DNH said.

Year-to-date the return on the All Share Index remains at 4%, whilst most analysts believe the Colombo Bourse’s potential for future upside hasn’t been fully tapped by local investors.

Asia Wealth Management said foreign investor interest in selected counters persisted while earnings performance was mixed.

The ASI witnessed a more volatile experience over the course of the week whilst the more liquid S&PSL20 index ended up in the green continuously throughout the week. This was on the back of continued large local institutional, high net worth and foreign interest in large cap counters.

“It is also noteworthy to observe that foreign investor interest has been sustained in selected blue-chip counters despite the pickup in the secondary market yields on Government securities in the short term. This could be a reflection of the view that the Central Bank would maintain or cut interest rates in order to facilitate the Government’s development agenda, which would lend further support to equity valuations of fundamentally-sound counters which are trading at attractive prices,” Asia said.

“However, in light of the mixed 4QCY12 financial performance reported thus far by firms, we stress the importance of understanding the broad macroeconomic developments which affect sector performances and hence the earnings of individual firms,” it added.

Asia also said the Economist Intelligence Unit (EIU) in its latest update for Sri Lanka released over the week expects real GDP growth forecast to slowdown to an average of 6.5% over 2013E-2017E, which is below the Central Bank’s expectations. It highlights the fact that whilst certain sectors such as tourism and construction may outperform, other sectors such as traditional export-oriented industries may underperform, the broking firm added.

Softlogic Stockbrokers said investor attention last week was focused around the steady lot particularly in Bank and Finance, Diversified, Telco and Food and Beverage sectors. It said these sectors have generated attractive returns with the recent rally, which is a significant positive indication on improving overall investor confidence in the Bourse.

“We expect the average turnover and volume levels of the market to improve further as the investor confidence further increase which would eventually follow in a bull market. Local play is particularly expected to gather pace within the next two to three months as we expect the market interest rates to come down. However, the current hesitancy of the local investors to pull cash from fixed income securities (one-year benchmark yield still remains high at 11.1%) and inject into equity, would keep them at a disadvantage as the overseas investors have already marched ahead utilising the current transition period,” Softlogic said.

DNH Financial also said it views the current market levels as an attractive entry point for both foreign and domestic investors seeking double digit returns in the medium to longer term. With the price of relatively lower quality companies having risen to considerably high levels during the 2009/2010 bull run, an opportunity to invest in companies of superior fundamental value now exists with significant upside potential of reversing relative underperformance.

“As we move deeper into the first quarter of 2013, valuations should continue to decline for such companies thereby justifying our optimistic case for equities. However, even within the quality company segment, we advise investors to be selective by investing in companies that have low debt/equity structures and relatively lower energy consumption needs,” DNH added.