‘Foreign investors with eye on future buying local undervalued stocks’

By Hiran H.Senewiratne

"Many foreign investors are currently buying undervalued, good local stocks that have a future market potential in emerging and frontier markets. Therefore, the Colombo Stock Exchange (CSE) is becoming a popular investment destination for such investors, Colombo Stock Brokers Association (CSBA) president Ravi Abyesuriya said.

"At this juncture the CSE is not moving to the expected level and most local retail investors are not active in the market. However, foreign investors who are mainly investing in emerging and frontier markets, like Sri Lanka, are now a main visible factor, Abeysuriya told The Island Financial Review yesterday.

He said foreign investors are using the current opportunity to the maximum while Sri Lankan investors are merely looking at the market without buying such undervalued stocks. "Therefore, it indicates the net foreign inflow has increased considerably, which is a great indication that foreign investors are more active than the local investors, he elaborated.

"At present, locals do not a see that the market is moving or growing but the industry has great potential to grow as we have a lot of catching up to do when compared to our regional peers, he added.

"Due to market fluctuations, we see the small retailers panicking, whereas the foreign investors are quite positive and they are making use of the opportunity to the maximum under this scenario. Therefore, with the current government economic policies we could anticipate real growth in the market, Abyesuriya explained.

CSE's Head of Market Development, Niroshan Wijesundera told The Island Financial Review that where foreign investors are concerned they are more active than local retail investors.

He said that that from August 1 to September 15, net foreign inflow was Rs 2.3 billion, which is a positive development where the CSE is concerned.

Marketing Manager, Candor Equities Limited Buddhika Payoe said yesterday that the market's foreign investor activities seem to be very strong as they were on the buying side, while the local retail investor market sentiment is quite low due to rumoured political developments, the VAT issue and many more factors.

Yesterday, the CSE recorded a turnover of Rs 459 million, while the All Share Price Index went down by 20.50 points and the Sand P SL 20 by 4.87 points. "When we study yesterday's market it is clear that foreign investor participation is significant due to poor local investor behaviour, he said.

The main contributors to yesterday's turnover were, Distilleries Rs 90.8 million, HNB Rs 55.6 million and Textured Jersey Rs 44.7 million. These were heavily traded stocks with good market potential, which have been bought by foreign investors, Payoe said. The number of shares traded yesterday were 34,209,933.

Meanwhile JKSB said of yesterday’s CSE trading:

ASPI: 6,429.94 (-20.50 pts; -0.32%); Val T/O: Rs. 459mn (US$3.15mn); Vol T/O: 34.2mn; Trades: 4,737

Advance/decline ratio: 62/111 ; Top gainer: MSL.N (+16.19%); Top loser: JKH.W (-41.38%)

Highlights:

• The ASPI ended lower amid subdued market turnover. Selected banking, food & beverage, manufacturing, diversified, and finance counters led activity levels with trading in DIST accounting for 20% of turnover for the day.

• Banks, Finance, & Insurance was the most actively traded sector (-0.24%)

• Stores & Supplies was the best performing sector (+1.89%), supported by gains on EBCR (+3.99%)

• Motors was the worst performing sector (-3.50%), dragged down by a decline in UML (-2.90%)

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Sri Lankan shares recover after four sessions of losses

Reuters: Sri Lankan shares edged up on Wednesday following four straight sessions of losses, as investors shrugged off the impact of a proposed increase in value added tax to pick up battered shares, amid high turnover.

The bourse hit a more than seven-week low on Tuesday as selling pressure on stocks that were expected to take a hit from the proposed tax increase weighed on sentiment.

The government proposed last week to raise the value added tax (VAT) to 15 percent from 11 percent.

The benchmark Colombo stock index ended 0.34 percent higher at 6,451.61.

"Market is up with the renewed interest from the institutional and high net worth investors," said Yohan Samarakkody, head of research at SC Securities (Pvt) Ltd.

"Investors have capitalised on the oversold counters and the fundamentals have not changed."

Turnover stood at 1.43 billion rupees ($9.81 million), well above this year's daily average of 744.5 million rupees.

Foreign investors net bought 28.9 million rupees worth of equities on Wednesday. They have net sold 2.1 billion rupees worth of shares so far this year.

Shares of conglomerate John Keells Holdings Plc rose 1.14 percent while Ceylon Insurance Plc jumped 5.30 percent and Sri Lanka Telecom Plc rose 2.70 percent.

The biggest listed lender Commercial Bank of Ceylon Plc rose 0.07 percent.

($1 = 145.8000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Amrutha Gayathri)

Sri Lanka to trade repos electronically: regulator

ECONOMYNEXT - Sri Lanka is considering electronic trades for repurchase and reverse repurchase deals in government securities, increasing transparency, the central bank which regulates bond markets said.

Repo and reverse repo deals involving a sale and buy back of bonds, for tenors shorter than the maturity.

All primary dealers and commercial banks carry out outright transactions in Treasury bills and bonds on a platform provided by Bloomberg from August.

Over-the-counter trades above 50 million rupees have to be reported within 30 minutes.

"Accordingly, all stakeholders have now begun to yield the benefits arising from the transparency, price discovery and liquidity created through this trading platform in the market," the central bank said.

The regulator said public price data released will be increased to twice a day from the current once a day.

"As the next stage, the Central Bank is now considering to introduce the repurchase/reverse repurchase transactions to this electronic bond trading platform," the central bank said.

Sri Lanka wants to refurbish 30 oil tanks in Trincomalee with IOC

ECONOMYNEXT - Sri Lanka's state-run Ceylon Petroleum Corporation wants to refurbish 30 tanks with Lanka IOC, for fuel storage and distribution, Minister Chandima Weerakkody said.

The tank farm in Trincomalee, built by the British during World War II was unused until they were leased to Lanka IOC, a unit of Indian Oil Corporation in 2002 as part of a privatization deal, giving Indians a presence in the strategic port.

Weerakkody said he had submitted plan to jointly refurbish and use 30 of the 102 tanks in the farm.

Most of the tanks were well preserved and only the pipelines needed to be built he said.

The ousted Rajapaksa administration indicated that it would 'take back the tanks' from Lanka IOC.

However Weerakkody said no cabinet papers were passed to that effect, though there were 'draft papers' he said.

Sri Lanka valued its relationship with India, he said.

There was a possibility of developing the tanks under Ceylon Petroleum Storage Terminals Ltd, a common user facility jointly owned by CPC and Lanka IOC.

Sri Lanka's Asian Alliance to become Softlogic Life Insurance

ECONOMYNEXT - Sri Lanka's Asian Alliance Insurance PLC is to change its name to Softlogic Life Insurance PLC following the Softlogic Holdings group’s deal to sell its general insurance unit to Canada-based FairFAx Financial group.

Asian Alliance Insurance said in a stock exchange filing that it has called for an extraordinary general meeting on 11 October 2016 to approve the change of name.

Softlogic Group retained the fast-growing life business of Asian Alliance when it entered into an agreement with FairFAx Financial group to sell the general insurance unit of Asian Alliance Insurance.

Expolanka travel unit, Funtime target corporate entertainment market

ECONOMYNEXT – Classic Travel, a unit of Sri Lanka’s Expolanka Holdings group, has teamed up with show business expert Imran Saibo of Funtime targeting the corporate travel and conference tourism market.

The partnership, the brainchild of Saif Yusoof, Managing Director of Classic Travel, recognizes the opportunity of combining the two firms to offer new experiences in both business and leisure travel along with entertainment and conferences, a statement said.

“The potential of such an alliance is obvious when considering the growing MICE market,” said Yusoof, referring to the Meetings, Incentives, Conferences, and Events (MICE) type of tourism.

“This collaboration of Classic with its strong corporate travel base and Funtime with its creative talents in the field of corporate entertainment means that we are going a step further in offering complete leisure and lifestyle solutions.”

Classic Travel is a part of Expolanka Holdings PLC whose interests cover logistics and leisure while Funtime Pvt Ltd. is an event production company.

“With the amalgamation of Classic and Funtime, we are building a formidable combination of travel, leisure and entertainment solutions,” said Saibo.

Sri Lanka's Industrial Asphalts says flooding ‘manmade disaster'

ECONOMYNEXT – Floods which disrupted operations in May 2016 were a ‘manmade disaster’, Sri Lanka’s Industrial Asphalts (Ceylon) (IAC) has told shareholders.

The firm’s premises at New Nuge Road, Peliyagoda, on the banks of the Kelani River north of Colombo were affected by the flooding in and around the capital.

“It is very important to note that the company’s land at Peliyagoda was not affected by the flooding due to its location or the contours of the land but due to a manmade disaster,” managing director G. Ramanan told shareholders in the annual report.

“All rainwater from the property is discharged to the adjoining canals. The water from the canal in turn is pumped out to the Kelani river. The canal has no direct link to the river,” he said.

When the area experienced historically record high rainfall, the canal’s two pumps were unable to cope while one of the pumps was out of service, he said.

This resulted in the canal water level rising above the company’s outlet pipes, effectively blocking the sole rainwater discharge channel, Ramanan said.

“All rainwater falling within IAC’s premises remained within the premises, resulting in the flood.”

Ramanan said IAC is gradually getting back to normal and that the total impact of the floods would be felt in the next financial year.

The company, which makes bituminous products and surface coatings for industry and household use, including road construction and maintenance, made a net loss of Rs11.2 million in the year to 31 March 2016 compared with a profit of Rs3 million the year before.

Sales rose to Rs78 million from Rs67 million. It reported a loss per share of Rs16.87 compared with earnings of Rs4.56 the year before.

IAC’s auditor, chartered accountants Cecil Arseculeratne & Company, has given a qualified opinion of the annual accounts.

They said spending by a related firm, Britex (Pvt) Ltd., set up recently, have an impact on IAC’s financial statements which it was unable to assess.

“Since we have no access to such records of Britex (Pvt) Ltd. we are not able to quantify the impact of such transactions to the Industrial Asphalts (Ceylon) PLCs’ financial statements,” the auditors said.

It drew the attention of shareholders to the management view on the matter disclosed in related party transactions note No.29.1 in the financial statements.

According to the note, Britex was formed with no direct shareholding by IAC with the aim of doing product development encompassing the latest developments in paints and coatings in the specific segments IAC has been operating in.

IAC has gradually lost its market dominance to new entrants who have been successfully introducing products that compete with and have replaced its own range of paints, the note said.

This prompted the common shareholding directors to “ring-fence” the new product development under Britex, which started early in the last financial year.

The note said the initial response to new products and coatings had been good and the firm had planned out a promotional campaign to introduce the new products.

“Unfortunately, the product tests of Britex’s initial development initiatives were not positive and there were significant setbacks,” it said.

“We could not bring to market the new products as fast as we wanted but there was no way to stop the advertisements.”

Total cost of such spending was Rs1.8 million and was done independent of IAC with no current or future spending to be incurred by IAC either as reimbursements or in any other manner the note said.

Sri Lanka vehicle registration see slight upturn in August

ECONOMYNEXT - Sri Lanka's vehicle registrations rose to 41,798 units in August from 35,775 in July, with motorcycles picking up to 29,365 units from 25,025 units, an analysis of vehicle registry data shows.

Total registrations were sharply down from 51,161 unit a year earlier.

JB Securities, an equities brokerage in Colombo said motor car registrations picked up 3,011 units from 2,596 units a month earlier, but was down from 9,107 units a year earlier.

Sri Lanka's vehicle registrations came down with a sharp increase in taxes and credit restrictions were slapped on motor cars, after vehicle imports were singled out for blame when a bout of money printing triggered a balance of payments crisis.

In country where Mercantilism has almost completely overshadowed economics, balance of payments trouble is routinely blamed on fuel imports. But this time with low prices, Mercantilists could not blame fuel imports for the currency collapse. Gold is a secondary target.

The rupee fell from 131 to 146 during the current balance of payments crisis, lowering the living standards permanently and pushing up domestic prices.

Analysts say car imports were a key 'escape valve' for money printed by the central bank in 2015, helping partly check domestic inflation and an asset price bubble, but the currency collapse pushed up all prices anyway.

Meanwhile JB Securities data showed mini truck registration have picked up to 1,448 units in August up from 1,148 reaching pre-crisis levels.

Three wheeler registrations rose to 4,355 units from 3,692 units in July, but remains sharply down from 9,107 units reached a year earlier.

Many three wheelers and motor cycles were bought by blue collar workers including tradesmen, raising living standards, but the new administration's policies have put vehicles further out of reach of the less affluent, critics say.