Saturday, 20 April 2013

Quote for the day

“As investors, we also always have to be aware of our innate and very human tendency to be fighting the last war. We forget that Mr. Market is an ingenious sadist, and that he delights in torturing us in different ways.” - Barton Biggs

Colombo Bourse sturdy as global stocks witness volatility....

The activities at the bourse regained strength subsequent to the ending of the holiday season. The ASI gained 42.37 points WoW to close at 5,882.3 points (0.7%), whilst the S&P SL20 Index gained 2.58 points WoW to close at 3,336.12 points (0.1%). Indices benefited mainly on the back of the gains made by Colombo Land and Development Company (18.6% WoW), DFCC Bank (3.2% WoW), Lion Brewery (4.5% WoW), Hatton National Bank (2.1% WoW) and Hemas Holdings (7.5% WoW).

Sri Lankan stocks continued to gather momentum during the week recording healthy turnover and volumes where the bourse gained WoW for the third consecutive week. Institutional and foreign participation was strongly rooted in mid and large cap counters, while retail participation was also at a relatively high level during the week presumably owing to the expectations over the downward trend in the market rates. UNESCAP(United Nation Economic and Social Commission for Asia) revealing its 2013 annual report mentioned that the country’s economic growth is expected to be propelled by easing of its monetary policies and fiscal policies whilst key sectors such as agriculture is also expected to improve after the setback witnessed during 2012 due to adverse climate conditions.

World stocks witnessed a volatile ride during the week in light of IMF’s lowered economic growth projections for world economy, which also predicted that US spending cuts could slow the growth of the country and the phase of recovery in EU. MSCI world index reversed its course during the week to close at a dip of 1.2% WoW, ending the continuous rally as the outlook for growth in the global economy waned.  

Furthermore, the week marked the earnings season of US companies. As per the data published by the Bloomberg 74% of the 90 companies in the S&P 500 have exceeded the analyst earnings estimates while 50% exceeded revenue projections as at Friday.

Moving to the Colombo Bourse, the week’s turnover level was largely driven by banking sector stocks, of which Pan Asia Bank played a prominent role due to a colossal crossing witnessed on Tuesday. Counter witnessed C. 15% of its issued quantity that accounted 44mn shares being transferred to Japanese investor Bansei Securities Co.Ltd at LKR21. The deal enhanced the year to date net foreign inflow of the bourse to reach LKR7.9bn as at Friday. 

Furthermore, representing the banking sector Commercial Bank of Ceylon, Hatton National Bank and Nations Trust Bank also enticed heavy institutional and retail activity to join the top weekly turnover calibre. Reaffirming this Banking, Finance and Insurance sector index witnessed a WoW gain of 0.9% while the diversified sector index also witnessed a WoW gain of 0.3% mainly due to the investor interest witnessed in John Keells Holdings. On the back of these developments, the week saw an
average turnover of LKR 1bn and an average volume of 45.8mn.

Furthermore, Pan Asia Bank, Free Lanka Capital Holdings, Seylan Merchant Bank, Citrus Leisure and Commercial Bank of Ceylon topped the list in terms of volume traded during the week.

The week saw foreign purchases amounting to LKR 2,365.4 mn whilst foreign sales amounted to LKR 1,033.2mn. Market capitalisation stood at LKR 2,253.2bn, and the YTD performance is 4.2%.


Interest at the Colombo Bourse sustained after New Year festivities...

Activities at the Colombo bourse picked up with New Year festivities drawing to a close whilst some profit taking in blue chip and Banking & Finance stocks was witnessed towards the latter half of the week. Interest in Banking & Finance sector counters continued during the week and took on a different dimension spurred by the steep drop in gold prices witnessed over the week. This raised concerns amongst investors towards Banking & Finance stocks that have high exposure to gold backed loans (i.e.: Pawning). 

However our analysis reveals that the impairment losses incurred on pawning is historically low compared to other categories of loans and hence a drop in value of gold is unlikely to lead to widespread defaults due to the sentimental value placed by borrowers on gold which is used as collateral. Hence we expect this development not to have a significant adverse impact on the asset quality of the domestic banking sector. 

However, a persistence of the downward trend in gold prices could affect the future loan growth from this sector which accounts for over 12% of the total loans disbursed by the banking system.

Despite some sell down being witnessed in some blue chip counters, the outlook for the domestic economy appears to be favourable with both the IMF and the UN-ESCAP expecting Sri Lanka’s GDP growth to reach 6.3% and 6.5% in 2013E respectively. Whilst expecting a general slowdown in global economic activity, the IMF expects Sri Lanka to continue to record the fastest growth rate for the South Asian region in 2013E. Further, the Central bank’s decision to keep policy rates stable for the month of April as well its commitment towards lowering market rates would augur well for equity valuations. Reaffirming the above, foreign investor expectations of the Colombo bourse continue to remain broadly positive as indicated by the YTD net foreign inflow of approx. LKR 7.5 bn to date.
Source: Asia Wealth Management Research

Bob Farrell's 10 Market Rules to Remember

Bob Farrell was an acclaimed market strategist at Merrill Lynch from 1967-1992. Bob guided clients through the bull market of the late 1960's, followed by the bear markets of the mid-1970's, then the Great Bull Market which began in 1982.

Most of the good analysts in those days focused on the markets,and individual stocks, rather than trying to make huge macro bets on the economy. Consequently, they tended to have more success over time.

In any event, Mr. Farrell came up with these "Market Rules to Remember", which I believe still have relevance today. I thought they might be useful to post on my site.

1) Markets tend to return to the mean over time.

2) Excesses in one direction will lead to an opposite excess in the other direction.

3) There are no new eras — excesses are never permanent.

4) Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.

5) The public buys the most at the top and the least at the bottom.

6) Fear and greed are stronger than long-term resolve.

7) Markets are strongest when they are broad and weakest when they narrow to a handful of blue chip names.

8) Bear markets have three stages — sharp down — reflexive rebound —a drawn-out fundamental downtrend.

9) When all the experts and forecasts agree – something else is going to happen.

10) Bull markets are more fun than bear markets