Quote for the day

"Timidity prompted by past failures causes investors to miss the most important bull markets." By Walter Schloss 

Four Phases of a Bull Market

Bulls tend to thrust their horned heads upward when attacking, hence the symbolism for a stock market on the rise. Bull markets are cyclical, with four phases. Sometimes the characteristics of these phases make them easy to identify; however, as the market moves through its life cycle, the differences can become less distinct. Historically, bull markets have lasted just under 40 months, according to trader Aubrae DeBuse.

Bull Market Phases
The man Money magazine called the 20th century's "Greatest Stock Picker," Sir John Templeman, said bull markets experience pessimism, skepticism, optimism and euphoria. Another investment professional, Laszlo Birinyi, founded the Birinyi Associates money management firm on the premise that an understanding of market history and how investors think offers a successful way to select stocks and time purchases. Birinyi identifies four phases in bull markets that reflect investor attitude and mirror Templeman's thoughts: Reluctance, digestion, acceptance and exuberance.

Reluctance Phase
Market disillusionment characterizes phase one of a bull market, according to Futures Magazine. This "reluctance" phase follows a bear, or falling, market in which many sold their holdings to cut their losses. The general public has little confidence in the market even though average prices and price/earnings ratios are typically low. Institutional investors start to accumulate holdings to take advantage of the low prices.

Digestion Phase
Individual investors begin to return in the second phase of the bull market. Institutional trader, Ali Meshkati, notes that, as they recognize the potential for a bull market to develop, investors study stocks in earnest once again. Stock prices, having increased for several months, attract more interest. In this second stage, investors add to their portfolios, which pushes prices higher. Rising prices create demand and greed sets in.

Acceptance Phase
Chris Johnson writes in his Winning Edge investment newsletter that the acceptance phase is the most powerful bull market. Stock prices soar as new investors enter the market. IPOs become popular to take advantage of growing public interest in investments, while the number of corporate mergers and acquisitions, fed by the availability of capital, increases. Media coverage gives investors pointers on how to profit from market activity. Institutional investors sell the shares they bought in phase one, then move into technology and other more speculative stocks. Mutual funds benefit from investors shunning cash vehicles such as money market funds, a reflection of confidence in sustained market growth.

Exuberance Phase
The "exuberance" phase is a period of volatility, high trading volume and high expectations. Investors in this stage of a bull market become speculators who ignore fundamental performance measurements when choosing stocks. An overriding feeling that the market will continue to flourish prevails. However, the market eventually becomes crowded, leaving fewer new investors. The flow of dollars sustaining market performance begins to trickle and top-performing stocks start to drop. The bubble of this final stage bursts as investors realize the market has outpriced itself.
Source: http://budgeting.thenest.com/

Quote for the day

"The market is cruel, it gives the test first and the lesson afterward." - Tyler Bollhorn

Macro economic developments followed by active local investor participation uplifts bourse’s performance

The activities at the Colombo bourse trended upward during the week with foreign, institutional and retail investors being actively involved, whilst the benchmark ASI breached the 6,000 mark on Friday reaching its 16 month high. It’s noteworthy to mention that active participation from retail investors was one of the main reasons for the small to mid cap counters to gain points, whilst blue chip counters too made noteworthy gains which in turn pushed the ASI to the 6,000 region. The ASI gained 51.01 points WoW to close at 6,013.18 points (0.9%), whilst the S&P SL20 Index gained 46.63 points WoW to close at 3,405.99 points (1.4%). Indices benefited mainly on the back of the gains made by John Keells Holdings (1.4% WoW), Lanka IOC (18.2% WoW), Commercial Bank (2.3% WoW), Hatton National Bank (3.7% WoW) and Ceylon Cold Stores (14.8% WoW).

We believe that the observed developments in macroeconomic factors such as improvement in trade deficit, drop in inflation, positive outlook of IMF on country’s economy and the expectations of a fall in market interest rates have boosted investors’ sentiment. The data released by the CB revealed that the trade deficit during the first two months of the year has contracted by 20.3% YoY, despite export earnings falling 10.7% YoY, mainly due to imports falling at a faster pace of 15.6% YoY. Export earnings for the month of February was down 2.9% YoY due to the earnings from agricultural and industrial exports declining, however garments and textiles which constitutes c. 40% of the country’s total exports has increased 8.8% YoY. Further the state statistics indicated that the inflation for the month of April dropped to 6.4% from 7.5% in March.

In addition, the IMF projects a stable economic growth for Lankan economy for the next two years; 6.3% and 6.7% in 2013E and 2014E respectively which places the country’s growth above the average of South Asia. Hence, in light of the overall improvements in macroeconomic factors, we believe that the Colombo bourse will likely to continue as an attractive investment option over the other investment modes.

The week’s activities were largely driven by local investors, whilst the week witnessed several crossings on large cap counters such as Commercial Bank, Colombo Dockyard, John keels Holdings and some mid cap counters such as Tokyo Cement and Colombo Land. Colombo Land topped the turnover list adding c.14% towards the weekly turnover, whilst John Keells Holdings and Commercial Bank were amongst the top contributors driven by institutional interest. Moreover, retail play witnessed on several counters made them to reach their 52 week peak delivering hefty gains.

Furthermore, Touchwood, Central Investments & Finance, Seylan Merchant Bank, Colombo Land and PC House topped the list in terms of volume traded during the week.

The week saw foreign purchases amounting to LKR 709.7 mn whilst foreign sales amounted to LKR 361.6 mn. Market capitalisation stood at LKR 2,304.8bn and the YTD performance is 6.6%.


Conclusion
Favourable trade data and monetary sector expectations sustains activities at the Colombo Bourse…

The week saw both indices ending in green possibly assisted by the expectations of a stronger LKR and lower interest rates following the upward revision of electricity prices by government authorities. 

Furthermore, trade data for February 2013 indicates that the deficit in the trade account declined significantly by 20.3% YoY during the first two months of 2013 while net inflows to government securities grew as much as 102.4% YoY to USD 1.2 bn indicating the positive sentiment of foreign portfolio investors on the
prospects of the Sri Lankan economy. On the back of these developments the Colombo bourse witnessed a positive momentum and a significant increase in both indices.

However, on the other hand, exports receipts for the first two months of 2013 fell 10.7% YoY to USD 1.5 bn mainly on the back of drop in industrial exports and the gross official foreign reserves of the monetary authority fell slightly to USD 6.7 bn in February from USD 6.9 bn in January. Furthermore, the 15.6% YoY drop in imports expenditure during the period under review is also likely to impact the revenue growth of the government given that approximately 60% of government tax revenue is derived through the imports trade.
Source: Asia Wealth Management Research

Quote for the day

"Understanding how to be a good investor makes you a better business manager and vice versa." - Charlie Munger

LSL Market Review 02 May 2013

Colombo shares closed at their highest in 16 months today with improved activity levels. Several counters such as John Keells Holdings (LKR 250.10), Dialog Axiata (LKR 9.50), Seylan Bank (LKR 70.00), Textured Jersey (LKR 11.90) and Lanka IOC (LKR 28.00) reached their 52 week high prices today.

The market turnover was LKR 635mn. Top contributors to the turnover were Touchwood Investments (LKR 123mn), John Keells Holdings (LKR 99mn) and Lanka IOC (LKR 38mn). The actively traded counters were Touchwood Investments (LKR 5.70,-19%), Lanka IOC (LKR 27.70,+14%), Laugfs Gas non-voting (LKR 20.80,+5%) and Colombo Land & Development (LKR 50.90,+1%).

Cash map for today was 47%.

Foreigners were net buyers for the fourth consecutive day with net inflow of LKR 99mn. Foreign participation accounted for 11.5% of the market activity. The cumulative net foreign inflow for this year stands at LKR 9.3bn. Interestingly, out of the total of 78 market days this year, foreigners have been net buyers for 54 days (i.e.69% of the time).

Quote for the day

"All market movements are based on “two deep-seated and entirely natural emotions: the desire for gain and the fear of loss.” - Burton H.Pugh