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A typical bear market lasts between 9 to 18 months and some of them are
never typical in nature. As of today the ASPI has lost close to 30% from its
peak in February 2011 signifying the 12th month of the bear market. On
one measurement we could there estimate this correction or consolidation
to last another 6 months. A bear market usually also has 3 separate
legs and bull swings within that period
Phase 1
The first leg starts when prices start to fall for no apparent reason. The
economy looks rosy, the future growth potential of corporations look
strong, the experts along with the general public feel optimistic and there
doesn’t seem to be anything to worry about. However “smart money”
starts to leave the markets and investors start to suffer losses in their portfolios
refusing to believe that there is a paradigm shift is taking place and
continue to hold/add onto their losses.
Phase 2
During the second phase of the bear market investors go broke and start
to panic sell, suddenly the economy looks gloomy and there are various
macro factors that continue to pile driving prices lower. This is the time
that equity analyst start to get bearish as they are historically considered
lagging indicators. During this period usually there is some activity from
fund managers seeking long term value. Corporate profits are still strong
and therefore there can be a short term bull market run as new and old
money finds its way into the market.
Phase 3
During the third leg corporations finally start to shed profits and earnings and there can be certain companies
that go bust. Most of them suffer from a state of illiquidity and a lack of credit in the system. The macro issues
are now priced into the markets and the government and central bank come to the rescue.
Which phase are the local markets in ?
The local equity markets seem to be in between phase 2 and 3. There are macro issues which are troubling and
corporate results are still strong. We expect stellar performances in certain sectors such as hospitality in Q1 and
possibly Q2, however there is a concern over the banking sector earnings due to net interest margins shrinking
and loan growth caps.
This may have ripple effects on the broader economy as higher interest rates may slow private sector growth.
However, Sri Lankan corporations have stayed profitable in the past during war times along with high interest
rates and therefore are well equipped to enter such conditions again.
We have seen an inflow of over LKR 2 billion to date as funds seems to be adding to their long value positions but
retail participation has been weak. We therefore expect the market to move sideways over the next few months
just like we have seen this week.
The seasonality factors also play into next month as historically the market takes some time off in April and there
is a possibility that May and June might present some interesting buying opportunity.
Most large capitalized stocks seem to be finding good support (JKH 160, SAMP 170, DIST 120, SPEN 115, COMB
100, HNB 140, CARS 400) and may have found a bottom as they consolidate around these level. This is a healthy
sign for the equity markets as it provides the index with the much needed support.
never typical in nature. As of today the ASPI has lost close to 30% from its
peak in February 2011 signifying the 12th month of the bear market. On
one measurement we could there estimate this correction or consolidation
to last another 6 months. A bear market usually also has 3 separate
legs and bull swings within that period
Phase 1
The first leg starts when prices start to fall for no apparent reason. The
economy looks rosy, the future growth potential of corporations look
strong, the experts along with the general public feel optimistic and there
doesn’t seem to be anything to worry about. However “smart money”
starts to leave the markets and investors start to suffer losses in their portfolios
refusing to believe that there is a paradigm shift is taking place and
continue to hold/add onto their losses.
Phase 2
During the second phase of the bear market investors go broke and start
to panic sell, suddenly the economy looks gloomy and there are various
macro factors that continue to pile driving prices lower. This is the time
that equity analyst start to get bearish as they are historically considered
lagging indicators. During this period usually there is some activity from
fund managers seeking long term value. Corporate profits are still strong
and therefore there can be a short term bull market run as new and old
money finds its way into the market.
Phase 3
During the third leg corporations finally start to shed profits and earnings and there can be certain companies
that go bust. Most of them suffer from a state of illiquidity and a lack of credit in the system. The macro issues
are now priced into the markets and the government and central bank come to the rescue.
Which phase are the local markets in ?
The local equity markets seem to be in between phase 2 and 3. There are macro issues which are troubling and
corporate results are still strong. We expect stellar performances in certain sectors such as hospitality in Q1 and
possibly Q2, however there is a concern over the banking sector earnings due to net interest margins shrinking
and loan growth caps.
This may have ripple effects on the broader economy as higher interest rates may slow private sector growth.
However, Sri Lankan corporations have stayed profitable in the past during war times along with high interest
rates and therefore are well equipped to enter such conditions again.
We have seen an inflow of over LKR 2 billion to date as funds seems to be adding to their long value positions but
retail participation has been weak. We therefore expect the market to move sideways over the next few months
just like we have seen this week.
The seasonality factors also play into next month as historically the market takes some time off in April and there
is a possibility that May and June might present some interesting buying opportunity.
Most large capitalized stocks seem to be finding good support (JKH 160, SAMP 170, DIST 120, SPEN 115, COMB
100, HNB 140, CARS 400) and may have found a bottom as they consolidate around these level. This is a healthy
sign for the equity markets as it provides the index with the much needed support.
