Friday 8 September 2017

Sri Lankan shares end higher on foreign buying; tax bill weighs

Reuters: Sri Lankan shares posted their second straight session of gains on Friday, further moving away from the lowest close in more than four months hit this week, as foreign investors picked up beaten down shares.

The Sri Lanka parliament on Thursday passed tax reforms that should simplify the tax system, widen the tax base and increase government revenue, as agreed with the International Monetary Fund in exchange for a $1.5 billion, three-year loan.

The Colombo stock index ended 0.22 percent higher at 6,375.86.

The bourse fell 0.2 percent during the week, its eight straight weekly fall. As of Friday’s close, it shed 4.4 percent since July 27.

Shares of Ceylon Cold Stores Plc ended 1.6 percent higher, while Asiri Hospitals Plc closed up 6 percent, Browns Investments Plc closed 6.5 percent higher and Dialog Axiata Plc ended 0.9 percent firmer.

Foreign investors net bought 78.8 million rupees ($516,044.53) worth of shares, extending the year-to-date net foreign inflow to 27.8 billion rupees worth equities.

“We have seen active participation of foreign investors after the inland revenue bill was passed,” said Atchuthan Srirangan, senior research analyst, First Capital Holdings PLC.

“We are seeing buying interest in blue chips. We expect market to see more active participation from both local and foreigners next week onwards,” he added.

The bill, Sri Lanka’s major tax reform since independence from Britain in 1948, seeks to expand the tax net and stamp out evasion.

Turnover stood at 688.1 million rupees, less than this year’s daily average of around 859.9 million rupees.

($1 = 152.7000 Sri Lankan rupees)

(Reporting by Ranga Sirilal; Editing by Sherry Jacob-Phillips)

Sri Lanka’s Colombo Dockyard to build cable ship

ECONOMYNEXT – Colombo Dockyard has begun building a cable-laying vessel for Kokusai Cable Ship Co. Ltd., the Sri Lankan yard’s first ship for a Japanese customer.

The keel laying ceremony for the ship with a diesel electric propulsion system took place at Colombo port Thursday.

It is Colombo Dockyard’s first cable-laying ship and biggest contract so far.

Designed by Norway’s Vard Designs, the vessel is intended for sub-sea operations and cable laying and repair work and shall be built to Class NK and also meet Japanese government regulatory requirements.

The vessel, which measures 111.3m-long and 21.5m-wide, is also the biggest vessel to be built by Colombo Dockyard, which is majority-owned by Onomichi Dockyard Co. Ltd of Japan.

The cable ship will be outfitted with a 2,000 tonne carousel system with a spooling arm by MAATS of the UK and can carry a crew of 80 people.

Sri Lanka Inland Revenue bill passed in parliament

ECONOMYNEXT - A new Inland Revenue law which removes exemptions and is aimed at extracting more income tax from the people has passed in parliament with 90 voting for and 25 against in the third reading.

In the first reading there were 100 votes for and 41 against, but during the somewhat exhausting committee stage where amendments, some members had decided to call it a day, the numbers show.

The income tax law is aimed at expanding direct taxes on capital and savings and eventually reducing indirect taxes.

Unlike indirect taxes such as value added tax takes away a proportionate amount such as 15 percent from people when they spend, direct or income taxes, tax savings and investible capital, undermining future investments and job creation.

Several countries in the Middle East which do not have income tax, have created employment many times the population, giving jobs to millions of people in countries with income tax such as Sri Lanka, India, Bangladesh and even, UK.

The money collected by the state through income taxes is frittered away in salaries of state workers, subsidies or other vote buying exercies. In 2015 Sri Lanka's finances were thrown into disarray after the new administration hike state worker salaries by 40 percent and increased subsidies, requiring more taxes.

However raising taxes is better than printing money to finance state spending, which leads to currency collapse and infaltion. The rupee collapsed from 131 to 152 to the US dollar after the 2015 budget.

In committee stage amendments, a number of changes proposed by sections of society and political parties were incorporated.

Finance Minister Mangala Samaraweera decline to delete a section which allows foreign authorities to request income tax details of citizens. There was also a section where the minister can compel groups of people or classes to file.

Religious organization who got wealth through Royal grants before 1815 would be free of tax, provided the profits were used for charitable purposes.

A request to conduct the committee stage next week made by the Janatha Vimukthi Peramuna was denied by the Finance Minister.

However he said if there were any pressing requirement, amendments could be moved after the budget, which was received with scepticism by JVP leader Anura Dissanayake.

Most amendments suggested by several parties and stakeholders have already been incorporated, Samaraweera said.

Ceylon Index Fund emerges as top performing fund in 1H

The Ceylon Index Fund (CIF) that invests in blue chip, liquid companies listed on the Colombo Stock Exchange (CSE) has emerged as the top performing Unit Trust out of all 78 mutual funds in Sri Lanka during the first half of 2017.

The fund reported a performance of 15.57%* during the first six months of 2017. The ASPI gained 8.33%** during the same six-month period. CIF is classified as an open-ended Equity Index Fund by the Unit Trust Association of Sri Lanka (UTA). 



The fund portfolio tracks the top 10 index companies, consisting of large market capitalised, liquid (high turnover) companies listed on the CSE. The index currently consists of JKH, CTC, Commercial Bank, Dialog, HNB, Hemas, Ceylon Cold Stores, Melsta Corp, Chevron Lubricants and TJ Lanka.

“The CSE is currently valued at a Price Earnings (PE) ratio of 10.75x, which is less than half the valuation of India.”

“The current low valuations due to political uncertainty is a buying opportunity for Sri Lankan investors. Foreign investors are actively investing in blue chip shares at present,” says Ceylon Asset Management Managing Director Dulindra Fernando.

Meanwhile, the Ceylon Money Market Fund that lends to investment grade, rated corporates over the short term reported a 11.42%* (annualised) return during the 1H of 2017.

The Ceylon Dollar Bond Fund that invests in dollar denominated SL Sovereign and Bank Bonds, reported a performance of 5.43%* (annualised) in dollars during the first half of 2017. The fund has been awarded a B+ international dollar rating by Fitch Ratings that mirrors Sri Lanka’s country rating.

The funds are managed by Ceylon Asset Management while Deutsche Bank is the Trustee and Custodian of the fund. Ceylon Asset Management is an associate company of Sri Lanka Insurance Corporation.
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