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Sri Lanka Equity Forum » Stock Market Talk » Expert Chamber » Why am I so pessimistic about Sri Lanka's Equity Market

Why am I so pessimistic about Sri Lanka's Equity Market

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rishanpossitive


Manager - Equity Analytics
Manager - Equity Analytics
@Tiger wrote:
@Kumar wrote:
@rishanpossitive wrote:
@Tiger wrote:
@rishanpossitive wrote:Time to go to road. Twisted Evil Twisted Evil

To live? I suppose there would be many to follow you.

No friend,For revolution.That's the only way market can go up.

Revolution in Srilanka Hahahahaha......
You are dreaming.
We need to have the guts for any action or reaction.

Revolution? Truth of the matter is we are still a very poor country because of this revolutionists who emerged from time to time since 1948. Revolutions cannot create wealth only Education, Discipline and Hardwork can create wealth.

Anyway please explain "For revolution.That's the only way market can go up", this. I may be not seen what you mean. If certain revolutionary actions can send markets up I would certainly rally with you.

මාර්කට් එක වහාම උඩ යවපියව්. (support from me)

REVOLUTION TO KICK OUT _ _

Kumar


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
@rishanpossitive wrote:
@Tiger wrote:
@Kumar wrote:
@rishanpossitive wrote:
@Tiger wrote:
@rishanpossitive wrote:Time to go to road. Twisted Evil Twisted Evil

To live? I suppose there would be many to follow you.

No friend,For revolution.That's the only way market can go up.

Revolution in Srilanka Hahahahaha......
You are dreaming.
We need to have the guts for any action or reaction.

Revolution? Truth of the matter is we are still a very poor country because of this revolutionists who emerged from time to time since 1948. Revolutions cannot create wealth only Education, Discipline and Hardwork can create wealth.

Anyway please explain "For revolution.That's the only way market can go up", this. I may be not seen what you mean. If certain revolutionary actions can send markets up I would certainly rally with you.

මාර්කට් එක වහාම උඩ යවපියව්. (support from me)

REVOLUTION TO KICK OUT _ _

Still dreaming is not prohibited in Sri Lanka no?

LateTackle


Senior Equity Analytic
Senior Equity Analytic
@smallville wrote:Greedy is right.. only 5 year deposits look promising at the moment.

What if you buy shares cheaper in this market? It will give u 100% return in 5 years as oppose to these FD rates..


If you buy at the correct time, I remember JKH at 60 and NDB at 70 your return will be more than 300% FD returns will never give you that type of return, if you want to make big money you have to wait for these blessings in diguise.

Every dark cloud has a silver lining. Idea Like a Star @ heaven

Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
This is why I was so pessimistic about the Sri Lanka's Stock Market.
Look at the change.

A) Sri Lankan rupee already down to Rs 122
B) Interest rate is still on it's way up 12.5% offed by NTB for 3 months and 16% offered by Pan Asia for 5 year.
C) Petrol, Diesel and Kerosine have hit the roof to be followed by LPG.
D) electricity tariff up 40% and bus fares up considerably.
E) ASI reached below 5,000 during trading.
F) inflation doom to be double digit

What's is next!!!
Higher corporate And income tax?

FXX


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
LOLC Securities Research Report suggested banks as a good buy and the other good news is speculative shares going down but foreigners are collecting fundamentally strong blue chip companies, investing 50 on FD's and 50 on bank shares seems good option but finding the bottom of the market seems not easy

Quibit

Quibit
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Oil's rise puts sanctions under spotlight

By John Kemp
LONDON | Tue Feb 28, 2012 8:11pm IST
(Reuters) - U.S. and EU sanctions on Iran's crude oil exports and its central bank were not supposed to affect either the volume of oil available or its price, provided markets reacted "rationally".

That was the conclusion of an influential report on the "Oil Market Impact of Sanctions Against the Central Bank of Iran", circulated by sanctions advocates at the Foundation for Defense of Democracies in Washington.

The idea that sanctions could reduce Iran's oil revenues without boosting prices for oil-consuming countries was crucial to persuading policymakers in the United States and Europe to impose far-reaching restrictions on Iran's oil sector.

But the policy has backfired. Oil prices have surged, harming consuming countries and offsetting the impact of lower exports on Iran's revenues.

MARKET MANAGEMENT

U.S. and EU sanctions were written very carefully to include plenty of flexibility to ensure they would not risk a spike in prices.

U.S. sanctions, set out in Section 1245 of the National Defense Authorisation Act for Fiscal 2012 (HR 1540), apply only if the president determines "the price and supply of petroleum and petroleum products produced in countries other than Iran is sufficient to permit purchasers .. to reduce significantly in volume their purchases from Iran".

Sanctions do not apply if the president determines an importer has "significantly reduced" its volume of crude purchases from Iran, and the president can waive them altogether if it is in the national interest.

The law mandates experts at the Energy Information Administration (EIA), in conjunction with the departments of Treasury and State and the head of the intelligence community, to review the availability of alternative supplies every 60 days. The first review is scheduled to be delivered to the U.S. Congress this week.

For supporters, the game plan was (1) to divert Iranian crude away from developed markets in Europe and Asia to developing countries; (2) grant emerging markets a pass provided they cut imports or negotiate steep discounts for Iranian oil; (3) line up alternative sources of supply by extracting promises from Saudi Arabia to boost exports; and (4) maximise publicity for all these arrangements to ensure oil markets did not bid up prices on supply concerns.

UNINTENDED INTERACTIONS

It has not worked. Brent oil prices have risen around $25 per barrel, or 25 percent, since sanctions momentum first started to build in earnest in late October/early November, and almost $18 since they were signed into law.

The steeply backwardated structured of futures markets suggests there are concerns about the availability of alternative supplies, despite Saudi offers of extra barrels. Hedge funds and other money managers have boosted long exposure to crude futures and options by more than 80 million barrels since the start of November and by more than 65 million since the start of the year.

Two things have gone wrong. First, sanctions are interacting with other supply disruptions (in South Sudan, Yemen, Syria) to reduce supplies and exhaust the cushion of spare capacity Saudi Arabia holds.

Second, the thicket of sanctions on Iran imposed by the European Union and United States is now so complex it is becoming hard to conduct trade that is supposed to be permitted.

A provision for permitting countries to continue buying Iranian oil provided they reduce the volumes or secure a U.S. presidential waiver is not much help if cargo and shipping insurance is not available because of other sanctions restrictions.

Sanctions strategy rested on the concept of permitted non-compliance and selective prosecution by the United States of countries and refineries that continued to purchase Iranian crude. But the sheer level of arbitrariness makes normal commercial activity almost impossible. Importers fear their waivers and permitted non-compliance could be removed at any time.

The result is that many emerging markets have not taken up the extra Iranian barrels no longer being delivered to Europe, and most are scrambling to cut their reliance on Iranian imports.

SELF-INFLICTED WOUND

Sanctions cannot be blamed for the entire increase in oil prices. Other stoppages, sabre-rattling by Israel and Iran, an improving U.S. economic outlook and another bout of massive monetary stimulus from global central banks have all helped push up prices.

Sanctions supporters argue that Iran's nuclear programme required some response and that sanctions were the least bad option. Military confrontation would have generated an even bigger rise in prices and more uncertainty and damage for the global economy.

But sanctions (especially those legislated by the U.S. Congress) are a notoriously blunt instrument with a questionable track record. In this case, the potential for sanctions to backfire, imposing significant costs on consuming countries, was well understood by outside observers as well as many energy experts within the U.S. administration and European governments.

Unfortunately, the political momentum for sanctions outstripped a proper analysis of the likely impact. In November and December, both the United States and the EU found themselves publicly and politically committed to a sanctions strategy before the detailed technical work had been done to assess the likely impact on Iran's revenues and oil prices.

By the time foreign policy officials began reaching out to colleagues in energy ministries as well as experts in the industry and at the International Energy Agency at a series of meetings late last year and in January, the momentum for sanctions had already become unstoppable.

REFINING THE STRATEGY

Oil sanctions are a classic example of poor policymaking under pressure from outside influences with insufficient attention being paid to detail and seeking expert input. The consequence is visible in the sharp rise in the cost of gasoline and diesel hitting consumers and businesses across North America and Western Europe.

It is likely sanctions policy will be refined in the coming months to soften the impact on consumers as well as reverse the rise in oil prices, which is currently benefiting rather than hurting Iran.

Neither the United States nor the EU is likely to lift sanctions, unless and until there is significant progress in engaging with Iran, which at the moment seems a relatively distant prospect. But there are less visible steps that could be used to adjust their impact.

The EIA's first 60-day assessment of alternative supplies will provide an opportunity to examine how sanctions are interacting with other disruptions and whether Saudi Arabia is managing to plug the gap.

In another 30 days, the president will make the first determination of which countries are significantly reducing the volume of their imports. Waivers and non-applicability decisions will allow the White House to start demonstrating some flexibility in an attempt to reassure markets.

Intense diplomatic pressure will be applied to Sudan and South Sudan to resolve their dispute over transit fees.

Western policymakers may also step up the pressure on Saudi Arabia to increase its exports and go public about how much extra oil is flowing. There is also likely to be an effort to reassure Asian refiners in China, India and certain other markets they will not be penalised for continuing to take Iranian crude, especially if they secure discounts.

Finally there is likely to be a renewed push to explain the impact of sanctions to financial investors in a bid to get the market to view them in a way that policymakers see as more rational.

Whether all this will be enough to avert a further damaging rise in prices is unclear. But having set the process in train, the onus is on foreign policy officials and sanctions supporters to show the consequences can be controlled.

(editing by Jane Baird)

Kosinna


Equity Analytic
Equity Analytic
[quote="Quibit"]I have listed below the reasons why I am so pessimistic about the current investment opportunities in the Colombo Stock Market.

b) Sri Lankan Rupee devaluation

You hear every where, that Sri Lankan Rupees is likely to be devalued soon!!. Some say its 5% others say its by 20%. This apparently to reduce the pressure on Sri Lanka's Foreign currency reserves and resultant high interest rates. Whatever is the case, this is likely to have sever impact to the economy. Can devaluation of the rupee could solve the current crisis. To me, answer is no !!! Sri Lanka is a import driven economy and any devaluation in of the rupee is likely to have a significant impact on inflation (The Cost Push Inflation) and intern the cost of production and services of all companies and industries. Among our imports Crude oil remain one of the biggest import cost to the country and any notable increase is likely to have a significant impact to all sectors of the country including high depended Transport, Electricity, manufacturing sectors.

Quibit Just to clarify:
If you think that devaluation of rupee is not the answer, what is your the suggestion to balance of payment issue? Borrow more $?

mono

mono
Vice President - Equity Analytics
Vice President - Equity Analytics
2012 is going to moderately Green for CSE.

Quibit

Quibit
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
It is always nice to go back in time to read some of the old posts and analysis. It would put your thought and future analysis in the right perspective. I particularly like this post made by Quibit.

4 months later it still hold some truth!

@Quibit wrote:I have listed below the reasons why I am so pessimistic about the current investment opportunities in the Colombo Stock Market.

a) Interest rates are on its way up.

From as low as 7% p.a interest rate few months ago the rates are spiraling upward with each bank competing with the one another to attract deposits. Few weeks ago I noticed one of the leading listed commercial bank (Nation Trust Bank) offering 12% p.a for 6-12 months deposits via email campaign few days later be out done by Pan Asia Bank with a offer of 15% p.a for 5 year deposits. With this trend 20% p.a is not impossible!!

As a depositor I am delighted to see this kind of increase in interest rates, which will make my money work for me without my having to work at all. If interest rates are going to be above 15%p.a it may not be a bad idea for me to sell all my business including stock market investment and deposit everything in a fixed deposit. Tell me any business that could guarantee you 15% Net Profit per annum without any risk!! Wow is going to be wonderful!!

Although I am delighted personally the impact of interest rates to the economy is likely to be horrendous. High interest rates will drive away the investors from stock market towards debt market, drying the opportunities that prevailed in the capital market for companies to raise low cost equity funding for their operations and future expansions. Alternatively companies will now have to resort to borrowed capital which will significantly reduce the future profitability and corporate earnings. This will further have a significant impact on the stock valuations and market capitalization. Will stock market slump further!! ASI 4000??... only time will tell us.

b) Sri Lankan Rupee devaluation

You hear every where, that Sri Lankan Rupees is likely to be devalued soon!!. Some say its 5% others say its by 20%. This apparently to reduce the pressure on Sri Lanka's Foreign currency reserves and resultant high interest rates. Whatever is the case, this is likely to have sever impact to the economy. Can devaluation of the rupee could solve the current crisis. To me, answer is no !!! Sri Lanka is a import driven economy and any devaluation in of the rupee is likely to have a significant impact on inflation (The Cost Push Inflation) and intern the cost of production and services of all companies and industries. Among our imports Crude oil remain one of the biggest import cost to the country and any notable increase is likely to have a significant impact to all sectors of the country including high depended Transport, Electricity, manufacturing sectors.

c) Iran Crisis.

Crude oil crisis is far more than a domestic problem. Sri Lanka imports significant component of oil from Iran. I guess its over 90% of total imported to Sri Lanka. This is as a result of generous credit period offered by the Iran. Under the current crisis and impeding embargo's Sri Lanka will be compelled to purchase oil from alternative sources. Further if Iran proceed with its own embargo's then it is likely to that world crude oil prices will reach record high resulting in sever crisis across the world.

What is good to buy and what is not!!

Banks
I would buy Banks. Coz bank would be a beneficiary in an high interest rate environment due to higher interest spread. Commercial Bank, HNB, NDB and Sampath seems quite attractive.
Hotels
I would buy hotels coz as a result of Rupee devaluation Sri Lankan hotels would cheaper and more attractive to the foreigners. Rupee earnings of hotels are likely to increase resulting in higher corporate earnings.
Motor
I would sell out of Motor Trading Companies such as DIMO, United Motors, Sathota, Colonial etc coz high fuel cost and depreciation of the rupee will reduce the short to medium term demand for motor vehicles. High interest rates also will dicourage people from taking leases.
Plantations
Significant component of Sri Lanka's tea is exported to Iran, Syria and to other arab countries. Any benefit we are likely to derive from the devaluation of the rupee is going to be off set by the likely reduction in demand for tea from Iran, Syria and Middle Eastern Countries due anticipated crisis. So I will not touch tea. But natural rubber is likely to be high in demand as a result of the higher cost of artificial rubber due to expected increase of crude oil. Good luck for rubber plantation.

Above post is a personal opinion of the writer based on current local and global events purported to be affecting the Stock Market and should under no circumstances be considered as Research or Recommendation to buy or sell shares



Last edited by GMNet on Sun Jun 10, 2012 4:00 pm; edited 2 times in total

Kumar

Kumar
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
GMNet wrote:It is always nice to go back in time to read some of the old posts and analysis. It would put your thought and future analysis in the right perspective. I particularly like this post made by Quibit.

4 months later it still hold some truth!

I do agree with Quibit.

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
GMNet wrote:It is always nice to go back in time to read some of the old posts and analysis. It would put your thought and future analysis in the right perspective. I particularly like this post made by Quibit.

4 months later it still hold some truth!

Thanks Quibit.Can't we move this to expert chamber?

WildBear


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@Redbulls wrote:
GMNet wrote:It is always nice to go back in time to read some of the old posts and analysis. It would put your thought and future analysis in the right perspective. I particularly like this post made by Quibit.

4 months later it still hold some truth!

Thanks Quibit.Can't we move this to expert chamber?
Trend started reversing, Crude oil prices dropping drastically, reaching 2 year low.I'm sure CPC is enjoying huge profits and will deleverage reducing huge public debt. Private sector credit in month of May fallen drastically to 18 billion from 55 billion rupees previous month,which is 17 month low. This will reduce the pressure on rupee and will stabilized or can even strengthen. We will see interest rates heading south sooner than later as demand for credit is diminishing . We saw some treasury bill yields are falling. How ever if we deposit now in longer term deposits, we can get good return over the next five years as suggested by Quibit.
Would like to hear others opinion as well

wis


Manager - Equity Analytics
Manager - Equity Analytics
Why did the oil prices come down? Less demand? Less energy consumption? Not much happening in the economies around the world?

Why did interest rates stagnate? People would happily grab even low interest rate to save their money? Lenders don't have to give high interest to attract the people because they're already coming?

Jeremy

Jeremy
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Interest rates are still moving up! CBSL might revise policy rates!
Banks are getting ready for the next wave!
DFCC Vardhana is offering 14% for 6 months
NDB is offering 14% p.a for 1 year.
NTB is offering 14.5% p.a for 1 Year.
HSBC is offering 19% p.a for 5 Year deposits!!

Are we on top of the interest rate curve???
Is it a good idea to sell the residue stocks and deposit money in these high yielding deposits?

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
GMNet wrote:Interest rates are still moving up! CBSL might revise policy rates!
Banks are getting ready for the next wave!
DFCC Vardhana is offering 14% for 6 months
NDB is offering 14% p.a for 1 year.
NTB is offering 14.5% p.a for 1 Year.
HSBC is offering 19% p.a for 5 Year deposits!!

Are we on top of the interest rate curve???
Is it a good idea to sell the residue stocks and deposit money in these high yielding deposits?
Consider the inflation rate before committing to any investment.

K.Haputantri

K.Haputantri
Co-Admin
@WildBear wrote:
@Redbulls wrote:
GMNet wrote:It is always nice to go back in time to read some of the old posts and analysis. It would put your thought and future analysis in the right perspective. I particularly like this post made by Quibit.

4 months later it still hold some truth!

Thanks Quibit.Can't we move this to expert chamber?
Trend started reversing, Crude oil prices dropping drastically, reaching 2 year low.I'm sure CPC is enjoying huge profits and will deleverage reducing huge public debt. Private sector credit in month of May fallen drastically to 18 billion from 55 billion rupees previous month,which is 17 month low. This will reduce the pressure on rupee and will stabilized or can even strengthen. We will see interest rates heading south sooner than later as demand for credit is diminishing . We saw some treasury bill yields are falling. How ever if we deposit now in longer term deposits, we can get good return over the next five years as suggested by Quibit.
Would like to hear others opinion as well
Interesting analysis, you see some silver lining in the already dark sky, when all the others are pesimistic. I have no reason to disagree with your point Wildbear, but ?Don't you think the intended improvements in the BOP account is only a temporary respite, because lesser fuel consumption means a sure sign of slowing down of the world economy which might boomarang on nations like us heavily dependant on world trade.

WildBear


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@K.Haputantri wrote:
@WildBear wrote:
@Redbulls wrote:
GMNet wrote:It is always nice to go back in time to read some of the old posts and analysis. It would put your thought and future analysis in the right perspective. I particularly like this post made by Quibit.

4 months later it still hold some truth!

Thanks Quibit.Can't we move this to expert chamber?
Trend started reversing, Crude oil prices dropping drastically, reaching 2 year low.I'm sure CPC is enjoying huge profits and will deleverage reducing huge public debt. Private sector credit in month of May fallen drastically to 18 billion from 55 billion rupees previous month,which is 17 month low. This will reduce the pressure on rupee and will stabilized or can even strengthen. We will see interest rates heading south sooner than later as demand for credit is diminishing . We saw some treasury bill yields are falling. How ever if we deposit now in longer term deposits, we can get good return over the next five years as suggested by Quibit.
Would like to hear others opinion as well
Interesting analysis, you see some silver lining in the already dark sky, when all the others are pesimistic. I have no reason to disagree with your point Wildbear, but ?Don't you think the intended improvements in the BOP account is only a temporary respite, because lesser fuel consumption means a sure sign of slowing down of the world economy which might boomarang on nations like us heavily dependant on world trade.

Crises creates opportunities for investors, while some perish. the good thing about recessions is they do not last long for years, not even the great depression in 1929. If you can remember the last bear period we had is from mid 2008 to mid 2009. Sri Lankan economy and markets ware affected by many ways
1- Global economic downturn
2-Climax of terrorist activities with intense security measures around country
3- Property bubble and collapse of property companies and market like The Finance,Golden Key.

However those who selected their own investment vehicles for different reasons during that bear period were winners by 2011.

Some invested in long term debt instruments which gave interest rates closer to18- 20 % p.a, during the period around 2007-2008.
some invested in properties at dirt cheap during the burst of the property bubble and enjoyed hefty gains later.
Some invested in Stocks, We know how many people become millionaires by 2011 !.
Some people invested in commodities like Gold, Gold also appreciated more than 100 % during last couple of years.

So we should be able to identify our own investment instruments at correct time to reach our destination. For that, as an expert member of a previous forum says "We Should have above average knowledge" Laughing

Sstar

Sstar
Vice President - Equity Analytics
Vice President - Equity Analytics
Quibit. you were very pessimistic in 2012 February and how come you are very optimistic about the market in 2014 June???

It is interesting to read your analysis?

SHARK aka TAH

SHARK aka TAH
Expert
Expert
Quibits comments during Feb 10, 2012 was interesting on banks front.Back then SAMP was trading around 170Rs and fell towards 150 and then risen towards 240. Back then interst rates were high and quite not sure why fell towards 150Rs. how ever gaining 90Rs since then to peak. And what has changed since then. Interests rates are LOW. Gold  rates DOWN affecting significantly lending. consolidation of Financial sector as per CBSL will help maintain Earnings.

However Banks will be able lend loans with innovative thinking and marketing tactics.
Public and private entrepreneurs will be encouraged to obtain loans for SME and spur economic growth in private sector.

So there is 2 sides for current phase in Banks and Finance companies.

The idea of CBSL is a positive and timely move in my personal opinion.....

So limited upside for companies not able to link up with the Giants

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