Financial Times

Stocks seen rising, companies expect boom when war ends

By Duruthu Edirimuni Chandrasekera

The Colombo stockmarket is seen as being positive on the back of declining interest rates and investor anticipation of a ‘quick’ finish to the Northern hostilities, according to analysts.

“The market is likely to remain positive especially with interest rates coming down sharply. On the other hand investors were expecting a quick finish to the war which is how the current upward trend emerged on the back of positive developments in the war front,” Geeth Balasuriya, Manager Research, Acuity Brokers said.

Several corporates said they were looking forward to the end of the war to invest in the northeast.
Charuka Suchendra, Research Analyst, Asha Phillip Securities said market sustainability and improvement can be expected with the stability in the political front coupled with the end in violence.
“The tendency of the interest rate drop and inflation also motivate the local investor sentiments,” he said, adding that the Central Bank finalizing the IMF loan is expected to stabilize the exchange rate depreciations.

However, Mr. Balasuriya noted that if there are signs of the war ending being delayed amidst international pressure and the markets could react adversely to this in the coming days/weeks.
“Therefore the two things to look for are the rates and the war/north developments, but the overall trend would be positive except for the profit taking at regular intervals which will push indices lower,” he explained.

He said hotels, construction and banking sector should do well in the medium to long term in this situation. “However even if rates come down and the war ends it will take time for companies to reap benefits as improvements in corporate earnings to take place will take some time,” he noted, adding that earnings will recover towards the latter part of 2009. Mr. Suchendra also said the upcoming quarterly results are expected to be poor. “The heavily spreading Swine Flu might be an issue in world economies,” he said, adding that this will affect foreign investor participation in the market.

Mr. Balasuriya also noted that some high networth investors (HNIs) who shifted funds to fixed income securities over the last one to two years are slowly entering the market. “But banks are yet to reduce the deposit rates in line with the recent fall in government securities. When this happens more HNIs will return to the market.” Meanwhile some analysts say the end to the war will boost many industries such as trading and construction.

"This is a huge untapped market. There is potential for trading, construction etc. Firms which are dealing in these areas will post huge revenues,” Dimuthu Abeysekera, CEO Asha Phillip Securities said.
John Keells Holdings (JKH) said the end of the conflict would present tremendous opportunities for the Sri Lankan economy and for JKH.

“We are the largest hotelier in the country, we have a substantial land bank in prime areas of Colombo, we have large investments in ports and logistics, we have dominant consumer foods and retail brands and we are a significant player in financial services. While the leisure and property sectors are the obvious immediate beneficiaries of peace, all our sectors will benefit from an upturn in the Sri Lankan economy,” the investor relations team at the company said in a statement to The Sunday Times FT.

Ashok Pathirage, Chairman Softlogic Group said Softlogic has already set pace to venture to Jaffna. “We zeroed in on a place for a small lab and we may start a hospital soon. We are waiting for the A9 to be in full operation,” he said, adding that Softlogic is also looking to start their retailing business soon in these areas.

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