Panic selling and bargain hunting sends market on roller coaster ride

MARKET REPORT: The market shredded approximately Rs.32 billion this week due to a combination of macro uncertainty, confusion on bonus issues under the new Companies Act, margin calls and panic selling.

During the first four days of trading the ASPI (All Share Price Index) dropped by 181 points representing a 6.8% decline.

However, on Friday the trend reversed with indices regaining approximately 40% of the lost ground during the first four days.

The ASPI during this week declined by 103.8 points to close the week at 2571.5 points while the Milanka Price Index (MPI) dropped by 75 points to close the week at 3666.2 points.

The trend witnessed over the last couple of weeks where a single stock contributed a substantial percentage of market turnover, continued this week with Dialog contributing a significant 82% towards this week’s market turnover.

On Thursday Malaysian Telecom, the parent company of Dialog, sold a 3% stake in Dialog for a consideration of Rs.27 per share to another foreign party.

Dialog contributed a mammoth Rs.6.39 billion towards the weekly turnover while trading within a range of Rs.26.25 and Rs.25.25. The share closed the week at Rs.26 per share, flat from last week’s closing level.

JKH took a back seat this week as the second highest contributor towards market turnover after being at the top during the last two weeks.

Though overshadowed by Dialog, JKH for yet another week managed to attract substantial investor interest contributing Rs.427.5 million towards market turnover.

JKH during the week traded at a high of Rs.149.50 and a low of Rs.142. The Counter closed at Rs.144.25, shedding 2.5% during the week.

SLT became the second telecom company to be among the first three contributors towards this week’s market turnover.

SLT managed a turnover of Rs.96.5 million this week while the counter traded within a range of Rs.38.25 and Rs.34.5. The counter closed 2% down this week at Rs.37.

Total turnover for the week stood at a mammoth Rs.7.8 billion while average daily turnover for the week stood at Rs.1.56 billion. This week’s average daily turnover showed a significant 473% growth compared to Rs.272 million, recorded last week.

However if the Dialog trade which took place on Thursday is disregarded the average daily turnover growth for the week stood at a marginal 7.2%.

Foreign investors remained net buyers this week amounting to Rs.467.5 million. Both foreign purchases and sales showed a significant growth of 702% and 1711% respectively due to the Dialog trade on Thursday, which went through as a foreign to foreign transaction.

Foreign participation during the week stood at a substantial 88% compared to 46% last week.

Point of view

Look for bargain hunting opportunities

Market plunged by 3.88% during the week with many factors such as confusion over the New Companies Act’s application on bonus issues, margin calls and tension in the peace front contributing towards the downfall. However some of the lost ground was regained during the late hours of trading on Thursday and Friday with bargain hunters trying to collect undervalued counters

BOP surplus strengthen foreign reserves

A mix of 16% decline in trade deficit and a healthy growth in worker remittances resulted in an increase in Balance of Payments (BOP) to surplus of US$ 240 million during the 1st quarter of 2007.

March exports grew by 17.7% to US$ 637 million backed by strong contributions from industrial exports such as textiles and garments, while agriculture exports such as rubber and coconut products also grew at a noteworthy rate.

During the month imports declined by 2.4% to US$ 853.7 million compared to US$ 874.6 million in March 2006, largely due to a 32.9% fall in petroleum imports. This resulted the trade deficit to decrease significantly by 35.1% to US$ 216.6 million compared to corresponding period last year.

Meanwhile during the 1st quarter of 2007 the cumulative exports and imports increased by 13% and 3.2% respectively to US$1,717 million and US$ 2,376.6 million resulting in a trade deficit of US$ 659.5 million, 15.9% lower than what was experienced during the 1Q of 2006.

A lower trade deficit and an increase in worker remittances by 12.4% to UD$ 647.7 million caused an increase in BOP to record a surplus of US$ 240 million during the 1st 3 months of 2007.

Furthermore this resulted in an improvement in the country’s reserve position with gross official reserves increasing to 3.2 months of imports in March compared to 2.9 months of imports in February 2007.

In our opinion the BOP would continue to remain positive in 2007 helped by lower petroleum imports and growth expected in worker remittances, however we highlight the importance of keeping the North and East conflict under control in order to attract more foreign investments and borrowings in to the country.

During next week we expect the market to regain the exaggerated drop witnessed this week due to margin calls and panic selling.

Market likely to recover this week

We expect activity levels to remain healthy this week as bargain hunting witnessed during the latter part of this week would likely continue during the early part of next week with interest on fundamentally strong counters such as SLT, Distilleries, Commercial Bank, HNB and Dockyards.

Thus we advise investors to focus on these counters looking at their fundamental value while at the same time capitalizing on possible trading opportunities in the market place.

(This information has been compiled from sources that we believe to be reliable but we do not hold ourselves responsible for its completeness or accuracy. No matter published herein create any liability of any kind of HNB Stockbrokers (Private) Limited or its associates. All opinions views findings and conclusions included in this report constitute our judgment of this date and are subject to change without notice.)