Panic Selling By Foreigners

• More To Exit following UN Report

The stock market continued to lose its momentum as predicted in the lead story on these pages in its last week’s edition, compounded by foreigners fleeing the market, made worse by the UN’s negative war report on the island.
“There is panic selling by foreigners in the backdrop of the UN war report on the island,” a market source told this reporter. “We may expect more to exit in the coming days, “he said.
The psyche of the foreign investor is such that he is looking at the next chapter, ie after the war report what is the next step that the UN would take?, the source said.
If as a next step the UN imposes sanctions on the island that would be detrimental to Sri Lanka’s economy. Those are the issues that are besetting the minds of foreign investors, that’s why they are exiting from the market, he said.
“The UN’s war report doesn’t help,” another market source said, referring to the foreigners’ negative perception of the market, though, foreigners, after booking profits have been exiting from the market in a continuous stream in recent times, he said.
The market, with a price to earnings ratio of 26.2 times is also too expensive for them to invest, the source said.
As a result, last week saw the benchmark ASI lose 99.85 points (1.3%)  week on week to close at 7,356.97 points while the more sensitive MPI lost 124.34 points (1.8%) to close at 6,822.77 points.
The bourse last week recorded a net foreign outflow (NFO) of Rs. 731.4 million, taking the total NFO figure from year to date to Rs. 8.3 billion. Foreign outflows last week were led by blue chip Commercial Bank of Ceylon (Com Bank), which on Tuesday saw 1.4 million of its shares sold, with a million of those having had been bought by the state controlled EPF, buying the same at Rs. 270 a share, while the balance was bought by a foreign party.
Com Bank on Thursday too was a victim of foreign selling, this time a million shares sold at a discounted price of Rs. 265 a share, with the buyer, a local, whose identity remained a mystery at the time of going to press. There is speculation that if the buyer was EPF, it may have had exceeded the 10% ownership ceiling prescribed by the regulator on banking stocks.
On Friday too Com Bank was subjected to heavy trading, a mix of foreign selling, coupled with local and foreign buying as well, resulting in some 2.6 million shares of Com Bank changing hands at prices ranging from between Rs. 268-270 a share.
Two million of those were “foreign to foreign” transactions at Rs 270 a share while the balance was a foreign to local sale at Rs. 268 a share.
Friday also saw a NFO of Rs. 144.4 million on a Rs. 1.9 billion turnover. On Friday, at the opening of the bourse in the morning, the market gained, buoyed by good first quarter results of the banking sector, but was unable to sustain this momentum, with the ASI finally ending up losing 20.68 points (0.3%) and the MPI 13.56 points (0.2%) over that of Thursday’s close. Banks’ financial VAT reduction as announced in Budget 2011 is however only a book entry gain, a source said.
They cannot take it into their profits. This is because they have been mandated to lend the gain made by the VAT reduction on long term lending, he said.
The stock market’s fall at the beginning of last week (Monday’s) trading was attributed by a source to investors taking their money out to invest in forthcoming initial public offerings. He however said that investors are also losing confidence in the market.
The market, the source said was mainly retailer dominated. Foreigners stayed out of the market. Though the market is overheated there are still some stocks which have value, he said. Another source said that the UN’s war crime report on Sri Lanka was negative for foreign investments in the bourse.
On Tuesday the market held, despite a foreign sale of 1.4 million Com Bank shares at Rs. 270 a share, with a million of those shares having had being bought by the EPF fund. Foreign purchases on Tuesday amounted to Rs. 157.5 million and foreign sales: Rs. 444.5 million.
Tuesday’s  turnover was Rs. 1.4 billion while the benchmark ASPI gained by a marginal 3.69 points (0.05%) over Monday to finish Tuesday at 7,349.17 points while the more sensitive MPI fell by 18.73 points (0.27%) to close at 6,836.54 points. Turnover on Wednesday was Rs. 1.3 billion, with the ASI gaining by 14.61 points (0.20%) over Tuesday’s close while the MPI fell by 20.17 points (0.30%).
On Thursday the ASI gained by 13.87 points (0.19%) over the previous day’s close and the MPI by 19.96 points (0.29%), despite a NFO of Rs. 307.9 million on a Rs. 2.1 billion turnover that day.