SL market 2008 - a chance to collect



Compiled by Bartleet Mallory Stockbrokers

The year 2008 started off on a depressive note with the killing of UNP MP T. Maheshwaran on the 1st of January. On the second day of the New Year, an army bus was bombed off at Slave Island killing two and injuring another 25. On this backdrop the Colombo bourse also absorbed the terror entailed by the general public and thus a not-so impressive performance was witnessed in the market during the first month. Most investors switched onto a ‘wait and see’ mode, averaging out the daily turnover level to a modest Rs.171mn. Nevertheless, some speculation existed with regard to LCEM, due to India's Birla Group expressing interest in purchasing the defunct cement manufacturing plant situated in Kankasanthurei.

However, the month of February saw the market becoming more bullish with the main tracker ASPI gaining part of the lost momentum during the previous month. This was mainly fuelled by the record breaking tea export earning which went beyond the Rs.1bn milestone for the first time in its’ history of 141 years and thus a resultant run on almost all plantation stocks came about, out of which KOTA gained the highest of 42 per cent month-on-month (MoM). Apart from that, favorable corporate earnings disclosed by many blue chips like JKH, NTB etc. also cushioned up and rejuvenated the market.

The hullabaloo of February died down in the month of March whereby only a marginal boost in the indices was witnessed. Heavy trading on counter SLTL kept the market upbeat mainly due to the Supreme Court ruling which served to make legal the transfer of Japanese NTT shares to Malaysia's GTH.

After the above stated Court Clearance, the transaction between GTH and NTT went through at Rs.50.50 per share on the 1st of April, raising the market turnover to a record level of Rs.33bn which made void the previous highest turnover of Rs.6.6Bn attained on the divestment of DIAL shares by its’ parent, Malaysia Telekom. Following this jubilant entry into the month, the rest of the days were also able to attract considerable investor interest despite the festivities and connected holidays.

Having witnessed three continuous months on positive pastures, the bourse went into a negative spell in the month of May. Although there was no negative news in particular, this decline in May can be somewhat attributed to the sinking in of the difficulty that DIAL was faced with in terms of maintaining their corporate earnings at the previous peak status of Rs.10bn in 2006. This was clearly indicated when the DIAL counter became the top loser MoM with a decline of 14 percent.

Pulling the whole market along with it into a dire status, because DIAL was the top market cap. counter at that point of time. The counter demonstrated a sharp downward trend and ended the year at Rs.6.00 on 31st December. In addition, the uncertainty with regard to many macro issues struck the bourse, especially denoted by spiraling inflation and the increase of the one year SLIBOR, thus many investors choose to remain on the sidelines silently observing the direction the market might take. However, the spotlight of the month fell on LOLC which acquired a strategic stake of 67% in COML from COMB and Chemanex Ltd.



The market yet again was on reverse gear in the month of June albeit at the same pace seen in May, in spite of the two market activity triggers announced with regard to the 33mn share IPO of JINS and the issuance of 8.5mn non-voting shares of CINS.

A ray of hope was cast onto the bourse in the month of July when the indices displayed a marginal recovery. The beginning of the collapse of the JKH counter occurred during this month when a Court Ruling went against the conglomerate directing it to return the bunkering land which was previously owned by Lanka Marine Services, to the Ports Authority. Another milestone was surpassed when JKH and AEC sold their stakes in AMW to the Dubai conglomerate, Al-Futtaim. This deal struck a memorable chord in the market turnover history, recording the second highest turnover of Rs.7.27bn. However, the hope acquired in July was lost in August, when the market dived into negativity again.


Next came the ’Month of Disaster’ when the Wall Street dilemma erupted with major financial institutions the world over crashing on the backdrop of the worst credit crunch ever since 1939. The ASPI which had up to now only dipped by less than five per cent MoM, ditched a significant 11 per cent during September, denoting a reaction to the global market adversity, despite the foreign exposure of the bourse being quite limited.

The situation worsened in October with the index shedding off the highest level of points MoM i.e.14.5 percent for the year 2008. The ASPI went below its’ 2000 support level for the first time in the year on the 10th of October and after the 15th of October the index was not able to creep above the 2000 level threshold again. The US market indicator the Dow Jones index too slumped well below the 9000 level and ended at the lowest closing figure since the year 2003. There was fear prevalent in the trading floor fuelled by foreigners pulling out their cash from the local markets especially with regard to counters like DIAL, JKH and COMB etc. Investors panicked and there was utter confusion in the markets whilst institutional investors preferred to remain on the cash. With the global recessionary signs seen on the horizon, the commodity bubble lost its’ spark and the prices of commodities came crashing down. The worst hit was the Plantation industry.

The market further declined by ten percent, MoM, during November with foreign selling pressure amounting to a significant level depicted by the net outflow of Rs.432mn for the whole month. Although global stock markets partied with Mr. Barack Obama when he was elected the first ever African-American Black president of the US following the election held on 4th November, the healthy sentiment was not long lived. Meanwhile, AMW decided to bid good bye to the bourse owing to the lowered liquidity level demarcated by the 97.5 percent strategic stake held by Al-Futtaim.

December too ended on the same negative note as witnessed in the preceding months. The ASPI and MPI recorded the lowest levels of 1484.53 and 1612.03 since the year 2006 on the 30th of December.

Overall the year 2008 lost a total of 41 percent with respect to the ASPI and 50 percent with regard to the MPI. It is also noteworthy that prior to the global credit crunch in September, the ASPI saw only a mere drop of six percent. This shows that an approximate 35 percent of the market decline was a result of the indirect impact of the global forces. Hence, it can be reasonably said that the CSE has already incorporated the global recession and its’ impact on local companies to a fair extent.

Gliding into the aspect of sector performance, it is observed that almost all sectors dived into negativity except for Motors and Construction & Engineering. The top notch was snatched by the ‘Motor sector’ mainly due to the mandatory offer exercised by Dubai based Al-Futtaim which kept the AMW price at a static Rs.174.50 for a long period of time. The Construction & Engineering sector too managed to perform favorably due to ongoing construction projects and further development activities anticipated in line with the Government plans and articulations. The top most loser was the Trading sector while the next highest depreciation witnessed by the Telecom sector. The Telecom sector experienced a decline of 50 percent on the backdrop of adverse performance of DIAL which ran into losses in Q3 of 2008.


The crash in the bourse however did not take place on a logically attributable manner because even fundamentally sound stocks saw a decline in an unanticipated context. Thereby, we urge our investor community to view this crash as a worthy opportunity to COLLECT heavy weights which are fundamentally sound. The market will undoubtedly react favorably to upcoming positive news in the war front in the near future and a technical correction will have to come into play. It is wise to be geared up to realize profits rather than start purchasing when the market starts its’ upward climb.

It is worth noting that the market witnessed significant improvement in January 2009 in response to an anticipated end to the 25 year old conflict with the LTTE. At one point, the CSE was touted as the best performing bourse in the world in 2009.



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