Foreign funds’ craving for Sri Lankan stocks persists

* Deals on JKH, Spence trigger

* Rs. 400 m net inflow but indices dip on weak local investor sentiments midst rise in interest rates

Foreign funds’ craving for select Sri Lankan stocks continue unabated as the Bourse saw a net inflow of Rs. 400 million yesterday amidst dip in indices largely due to weak sentiments from local investors.

Contrary to misconception among some that foreign inflows currently enjoyed by Colombo Bourse are from dubious parties, yesterday’s as well as recent foreign buying are largely by established funds.

A fund linked to Aberdeen was responsible for Rs. 538 worth of buying into JKH and Aitken Spence. Premier blue chip JKH saw three crossings involving 1.8 million shares at Rs. 211.80 each with Captains being major sellers. Aitken Spence saw two crossings involving 1.3 million of its shares at Rs. 121 each. The seller was a foreign fund.

Foreign funds/investors were also on the buying side of Commercial Bank, Cargills, Ceylon Tobacco, Distilleries (which saw Rs. 600 million in foreign buying on Friday), Softlogic Holdings and Lion Breweries yesterday.

In total foreign buying amounted to Rs. 575 million and selling was Rs. 179 million, resulting in a near Rs. 400 million inflow, propelling the year to date inflow close to Rs. 36 billion mark, an all time high. According to Lanka Securities, foreigners have been net buyers for 165 market days out of the total of 220 so far this year (i.e.75%).

Deals on JKH and Spence accounted for 74% of the day’s turnover of Rs. 739.4 million. Local investor sentiments wise, the Bourse saw further setback as ASI dipped by 1% bringing the year-to-date negative return to over 12%.

Some linked the dip to rising scenario for interest rates, a development making fixed income options more attractive for investors whilst others pinned it to lack of confidence. At yesterday’s weekly Treasury Bill auction, the weighted averages (WAY) of the 364 and 182 day bills continued its upward trend increasing by 4 basis points (bp) and 2 bp respectively to 12.85% and 12.09%. The benchmark 91 day bill in the meantime, increased by 5 bp to 12.79%. (See P4 for more).

The main negative contributors to yesterday’s ASI’s dip were; John Keells Holdings (-1.3%), Sri Lanka Telecomm (-2.09%), NDB Capital Holdings (-6.13%), Commercial Bank (-1.48%) and Carsons Cumberbatch (-1.11%).

Softlogic Stockbrokers said the more liquid MPI touched 5,389.04 (+9.21 points) at its intra-day high, before taking a steep downtrend to touch 4,857.88 points at its intra-day low before settling at 4,858.15 points (-77 points).

The S&P SL20 index witnessed its peak at 2,964.70 points during mid-day trading which declined to 2,937.73 points at its lowest before the index lost 25 points at its close of 2,934.77 points.

The banking cluster gathered interest with Commercial Bank and Nations Trust Bank edging up to the top turnover slot. The former witnessed c.72k shares changing hands at Rs. 100 while the latter saw 297,000 shares being transacted at Rs. 53. National Development Bank gained focus during the final hour of trading as a tranche of 95,000 traded at its intra-day low of Rs. 132 (-2.2%).

Renewed interest heaved up in Piramal Glass as several on-board blocks were transacted at Rs. 6 including a block of 500,000 shares. Interest stayed in People’s Finance and Eden Hotel Lanka. The former hiked up 3.6% to Rs. 35 at its intra-day high before closing at Rs. 34.4 (+1.78%).

Softlogic also said retail activity was not majorly prominent yet slight interest was witnessed in penny stocks; Browns Investments (+0.0%), Free Lanka Capital (-8.7%), E-Channelling (-1.85%) and Swarnamahal Finance (-3.23%).

A number of stocks touched their 52-week low price levels; CIC Holdings, Tokyo Cement, Swarnamahal Finance, Ramboda Falls, Regnis Lanka and Bimputh Finance, while SMB Leasing, Coco Lanka, Touchwood Investments, Vidullanka, Beruwala Resorts and Touchwood Investments continued to trade at their respective 52-week low levels.
http://www.ft.lk/2012/11/29/foreign-funds-craving-for-sri-lankan-stocks-persists/

PURSUIT OF GROWTH

This article essentially captures what Foreign Institutional Investors (FIIs) are doing. They are IN PURSUIT OF GROWTH - i. e. investing in well managed companies that show potential for strong growth in earnings.

This is not surprising as growth in Europe and USA is negligible, yields on financial assets are very low (mostly under 2%) and risks are high (Greece, Spain, Italy etc.). With the federal reserve of the USA determined to keep interest rates low in the foreseeable future (in order to reduce its borrowing costs - the Chinese are lending money to the US at 0.5%), it is no wonder that FIIs keep buying into companies such as JKH and SPEN.

I trust our investors too will recognize these patterns i.e. focus on growth.

The main impediment for market performance is high interest rates - with the risk-free 12 month yield at 12.9% local investors are well off in fixed income instruments (vs. under 2% for FIIs). But the Central Bank may cut policy rates in January 2013 as inflation is likely to decline now.

One thing to consider is that foriegn bond/CD rates are very low in those counries. So 10-20% even a gain is considerable for them. There might be foreign parties doing trades on CSE but these Funds don;t just buy for10% gain as they tend to hold for long term.

They beleive in growth companies as DUWI said. When we find good companies in making presently like JKH,COMB,SPEN we shoudl analyze and invest. SOme point those companies might improve their image, share liquidity and earning and foreign funds can start getting in big time. When they do others including local funds , HNWI might follow.

Anyway the above is not for certain parties at this forum who confuse long term investment vs short term and always try to uphold their idea that short term is the only way to go and critisze long term investment strategies.

A usefull discussion but the reasons for the current downfall in Sri Lanka bourse may be mainly due to the upward movement of interest rates. Its the opposit of what is happenning abroad.

?So the culprit of present issue is the CB, trying to mop up liquidity.