The Colombo Stock Exchange (CSE) this year achieved the top position among world stock markets with its significant growth during this year when the benchmark All Share Price Index (ASPI) rose to an all time high of 3188.82 on December 18 but charges against US-based fund manager Raj Rajaratnam, the single largest foreign investor partly dampened the market.
Colombo Stock exchange
A sharp recovery in prices in the John Keells Holdings stock which rose to over Rs 160 last week from a low of Rs 60 per share in 2008 was also a dominant feature of the market.
This generated a total return of 108.89% for the year, reflecting the positive market sentiments following the war with analysts saying that this index is slated to jump about 1000 points more within the first few months of 2010.
Jaliya Wijeratne, Director Institutional Sales , SMB Securities noted that next year will see the ASPI touch at least the 4000-level within the first few months. “With overall interest rates on the decline the attractiveness of equity will improve further. A number of development projects are currently on and the completion of them in the medium run will see an increase in profitability of the corporate sector,” he said.
Yadhavan Jeyaram, Manager Sales, Bartleet Stockbrokers said that CSE indices will continue to increase its performance with higher retail investments and more foreign investors will utilise their funds on Sri Lankan stocks.
“After the Presidential elections in January 2010 more foreign participation is expected. With tourism, land and property sectors reaching their full potential, indices are expected reach up further. The benefits of reducing interest rates are expected to come in the next year as banks will expand their credit portfolios while investors will borrow money to invest in high return alternatives like CSE,” he said, adding that political stability will be a crucial factor in developing the investor sentiments.
He also observed that 2009 started with a bottomed-out beginning, but the ending of war boosted the investor sentiments with retailer participation increasing and certain stocks that were undervalued for a long time getting some interest (such as the hotel stocks).
“New companies such as Renuka Agri Foods were listed on the CSE, the interest rates were cut down, Rajaratnam and Galleon fund started to divest from JKH and other blue chips. Overall year 2009 is one of the best years for CSE,” he said.
Analysts said that with the announcement of the dates for the Presidential elections the only overhang remaining in the market was the 9% personal stake in JKH that Sri Lankan-born Rajaratnam (indicted in the US) owned and by the second week of December, global investment fund Janus had completed buying a 3.5% stake in this company Arjuna Dassanayake, Vice President, Acuity Stockbrokers said that most sectors had performed well this year, although land & property, telecommunications and the plantation sectors have under-performed due to the slowdown arising from the failure of the Ceylinco Group finance and real estate companies and its fallout effect on other related businesses within the industry .
“The over-supply of office space available within the business areas of Colombo and the cost cutting measures adopted by companies too has had an effect in the land and property sector. The wage hike in the plantation sector and the overall drop in production due to the weather were the main reasons for its lackadaisical performance,” he said, adding that the price competition among the mobile operators and the high capital costs has affected profitability of the two quoted telecoms.
He said that Dialog has posted losses throughout the year and the unlikelihood of a satisfactory recovery in the near term has dented the confidence among the investors and brokers in the telecom sector shares. Mr. Dassanayake noted that rapid reduction in the interest rates, the steady build up of foreign reserves after the approval of the IMF bailout package, reduced government borrowing which locally triggered an excess liquidity position among banks and other local institutions.
“Also part of these funds was shifted to the capital markets rapidly during the second and third quarter of the year,” he said.
Analysts noted that the Sri Lankan economy grew, in real terms, by 1.8% during the first half of 2009, adding that this was largely supported by a relatively favourable growth of 3.7% in the agriculture sector.
“The agriculture sector is expected to improve in 2010 benefiting from expected favourable weather and the re-integration of the Northern and the.
Eastern Provinces, while the industry sector is expected to grow at a relatively higher rate with the expansion of markets in the newly liberated areas and the recovery of the global economy. The services sector is also expected to grow at a higher rate with the recovery of domestic economic activities, tourism, import and export trade, banking and finance and other sub sectors,” an analyst noted.
Another analyst said that 2009 was a dream year for CSE. "The activity levels, valuations improved enormously and improvements in country’s economic fundamentals helped CSE," he said, adding that the market is valued at 16 times of the Price Earnings (PE) ratio. "Therefore corporate earnings are likely to show a significant improvement in excess of 30-40% in 2010 (from a low base in 2009) and the valuations still look very attractive. Therefore we could see the index continuing to head north, driven more by value than sentiments," he said. He noted that sectors such as banking and leisure are likely continue then good run in 2010.