Politicos , Brokers ; Bourse’s Tailwind

• Black Money In Guise Of Foreign Purchases

The bourse is like a sailing ship pushed forward by a tailwind, a market source describing the stupendous gains made by it these days, said.
The tailwind is politicos and brokers, he said.
The bourse at Friday’s trading saw the benchmark ASI go up by 149.68 points (2.59%) over that of the previous day Thursday’s close to finish  last week at 5,926.90 points while the more sensitive MPI gained by 168.76 points (3.11%) to finish Friday at 5,588.19 points.
Turnover was Rs. 3.2 billion.
“Politicos invested in the bourse last year, so they have a vested interest in its performance,” he claimed.
“I have been an active participant of the bourse for the past 19 years and in 18 of those 19 years politicos didn’t care two hoots about the bourse until now,” the source said. It then too had its ups and downs, but that didn’t bother them.
The source further alleged that though the bourse recorded a Rs. Rs. 1.1 billion foreign purchase (FP) figure on Friday, most of it was black money held by locals in foreign accounts. Those are not foreign fund purchases, he said. Foreign fund purchases are generally for the long run and not for trading purposes.
Those so called FPs were virtually squared by a foreign sales figure of Rs. 887 million also recorded on Friday.
In an environment where liquidity is tight and interest rates are rising, there is seemingly no justification for the bourse to make gains when the fixed income market is more appealing, the source added.
He also referred to the recent “turmoil” caused at the Securities and Exchange Commission (SEC), the regulator, beginning with the removal of Ms. Indrani Sugathadasa as SEC Chairperson nine months ago and her successor Thilak Karunanratne last month, persons of unimpeachable integrity in their professional lives, who were “going” after market manipulators and who also brought in broker credit restrictions due to the possible systemic risk that such an activity may cause, as, victims of politicos and the case of political interference in the bourse for the first time in his 19 years as a  stock market stakeholder.
Those clampdowns introduced by the regulator then, resulted in it beginning to make losses from the middle of last year as those malpractices were checked.
But with the recent sackings in the SEC, broker credit controls have had allegedly gone overboard, hence t he reason behind the gargantuan gains made by the stock market, coinciding with Karunaratne’s sacking last month.
“It is a case of buy-sell, buy-sell, no one is holding on to stocks,” the source said. It’s akin to a stone rolling down the hill which gathers momentum as it goes down, he said. But when profit taking overtakes the bourse and when selling starts, there will be more sellers than buyers, he said. That’s when the market starts to go on a tailspin.
The SEC comes under President Mahinda  Rajapaksa by virtue of him also being the Finance Minister.
Politicos interest in its performance is because they have had invested in it last year, he claimed.
Meanwhile some virtually unknown stocks were among some of the top gainers at Friday’s trading.
The top five gainers on Friday were G.S. Finance, Fortress Resorts, Kotmale Holdings, Ceylon Printers and Valliebel One.
Blue chip Commercial Bank (Com Bank) was the highest contributor to Friday’s turnover with Rs. 483 million of its shares subjected to a block trade at Rs. 115, while another Rs. 225 million was subjected to seemingly “normal” buying. Com Bank however closed down at Rs. 114.96 a share, 64 cents less than its previous closing price of Thursday’s.
The second biggest contributor to the day’s turnover was the other blue chip, JKH, with Rs. 203 million in normal trades and another Rs. 174.8 million in three block trades. JKH too closed down, at Rs. 217.51, 49 cents less than the previous day Thursday’s closing price.
That was followed by CSF (Nations Lanka Finance) with Rs. 152 million and closing at Rs. 14.37, down 33 cents, 4th highest contributor to Friday’s turnover was Ceylinco Insurance (Rs. 134.1 million). Ceylinco Insurance closed Rs. 751.22, up 22 cents; 5th highest: Vallibel 1, closed Rs. 23.02 and down 58 cents and 6th highest contributor to turnover: eChannelling (Rs. 85.5 million), closed Rs. 6.46, up six cents over its previous close.Meanwhile on Thursday, the bourse, which previously made gains largely on the back of second tier speculative stocks, reversed this situation to some extent , though foreign participation was relatively thin.
Out of a Rs. 1.9 billion turnover, FPs contributed to Rs. 265.37 million (13.8%) of this number, resulting in  a Rs. 155.24 million net foreign inflow (NFI).
Turnover was led by blue chip Com Bank (Rs. 178.56 million), followed by the perennial blue chip mover of the market JKH (Rs. 117.75 million), CSF -Rs. 93.36 million, while 3rd and 4th places vis-à-vis market turnover were occupied by blue chips HNB (Rs. 77.58 million) and NTB (Rs. 65.2 million) respectively.
The ASI and the MPI made large gains, in part helped by the aforementioned stocks, with Com Bank’s share value closing at Rs. 110.70 a share, up Rs. 1.50 over the previous; JKH up Rs. 2.37 to Rs. 210.77; CSF up Rs. 1.24 to Rs. 12.54; HNB up Rs. 4.92 to Rs. 155.32 and NTB up Rs. 2.11 to Rs.62.21.
Good quarterly performances in the previous quarter by banks have renewed interest in this segment, a source said.
The top five gainers on Friday were GS Finance, The Finance (non voting (nv) shares), Hayley MGT, Malwatte (nv) and The Finance (voting).
On  Wednesday, the bourse backed by second tier stocks such as Environmental Resources, East West Properties, Dankotuwa Porcelain and LAUGFS Gas continued to push up the market that saw a Rs. 1.2 billion turnover, with the aforementioned stocks being among the top six in terms of turnover contribution with a 19.4% figure.
FPs comprised a mere 14.6% of Wednesday total turnover with a Rs. 104.49 million (US$ 792,000*) NFI. The biggest contributor to the day’s turnover however was blue chip JKH, with 12.5%, Sampath Bank, another blue chip was in 5th place (3.4%), with Rs. 41 million of its shares subjected to a block trade. The ASI climbed 77.40 points (1.38%) over Tuesday’s closing figure, while the MPI made a 39.26 point (1.29%) gain.
The top five gainers were second tier stocks such as GS Finance, Asia Siyaka, CIFL, LAUGFS and Beruwela Walkinn.
Meanwhile at the beginning of the week, ie on Monday too, the stock market, mainly driven by retailers day trading on penny stocks, saw turnover being uplifted to Rs. 1.9 billion, while the ASI gained by 95.18 points (1.73%) and the  MPI by 155.48 points (3.05%).
Foreign activity was relatively subdued, with FPs amounting to Rs. 166.74 million on a mere Rs. 38.85 million NFI. According to the Colombo Stock Exchange, the main gainers on Monday were PC House, Huejay, Commercial Development, Lake House Printers and Mullers. “There were some high net worth and modest amount of institutional activity on stocks such as JKH, Sampath Bank and NDB at Monday’s trading,” a market source said.The biggest contributor to Monday’s turnover was Environmental  Resources (Rs. 73 million), followed by JKH (Rs. 70 milllion), Sampath Bank (Rs. 62 million), Pan Asia  Bank (Rs. 55 million), Citrus (Rs. 42 million), PC House (Rs. 34 million) and Pan Asia Power and NDB (Rs. 30 million each).  The following day Tuesday (September 11) trading, once more dominated by retail activity, fell on profit taking, though market turnover hit the Rs. two billion mark.
The ASI fell by 1.13 points (0.02%) and the MPI by 29.12 points (0.55%). Foreign interest in blue chip Com Bank and JKH however helped to take up foreign purchases to Rs. 334.53 million and record a Rs. 247.72 million NFI.
John Keells   Stockbrokers (JKS) commenting on Tuesday’s market performance said, “The indices dipped on profit taking ending a 10-day run with activity led by local retail participation on second tier speculative counters dominating the day’s turnover.”
A stockbroker complemented JKS’ comments by saying that the reason why the MPI fell sharply at Tuesday’s trading was because second tier stocks, which are now part of retail play, also go to form the usually blue chip MPI.
*1US$=Rs.132

Stability Or Short Term Gain?

Investigations on stock market manipulators seemingly brought to a halt after the sacking of key persons behind such moves at the Securities and Exchange Commission (SEC) and the appointment of persons of dubious repute to fill in the vacancies thus created, has brought instability to the bourse which will come into a climax when the current bubble in the Colombo stock market bursts.
The bubble has been created by penny stocks, ie stocks which have no intrinsic value having had been pushed up through broker credit being made available to retailers. Such a situation doesn’t lend firmness to the stock market which has made gains on dubious stocks, which price increases do not reflect such companies true performance by way of profits made, “earnings per share” and similar such indicators.
And the danger here is in the event the bourse collapses, caused by those same penny stocks, artificially propped up, going under, that may trigger a run on the bourse, with investors who have had bought such stocks on borrowed money ending up getting their fingers burnt.
On the other hand if investigations on stock market miscreants were allowed to have had been pursued and the offenders punished, it would have had brought credibility and stability to the bourse, a stockbroker told this reporter.The SEC comes under President Mahinda  Rajapaksa by virtue of the fact that he is also the country’s Finance Minister.