Sri Lanka small investors push up stock prices

Jan 20, 2009 (LBO) – Sri Lankan small investors pushed up share prices again Tuesday, fired by military gains against Tamil Tiger rebels and lower interest rates but lack of fund buying meant the upswing might not last, brokers said. “Last week, when the central bank announced the rate cut, the very next day the market showed aggressive behaviour because interest rates were main factor which impacted the stock market,” said Liyanage.

Interest rates and inflation soared to record highs last year but have begun to fall.

Brokers said that although investor sentiment appears to have turned positive they anticipate profit taking that could bring the market down.

Liyanage of Lanka Securities also warned that economic fundamentals had not improved both locally and globally.

“The December quarter results will start to come soon and I do not think most companies will show positive results. Then the stock market’s momentum might not be sustained.”

He noted that plantations companies especially might take a hit as tea and rubber prices crashed towards the end of last year with the collapse of the global commodities bubble.

Regional plantations companies listed on the bourse have drawn renewed investor interest since last week with news that tea prices have improved.

Meanwhile, Capital Reach Leasing, a registered finance company, said in a stock exchange filing that it will list 20 million ordinary shares on January 22 under the banks, finance and insurance sector on the second board of the Colombo stock exchange.

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The All Share Price Index rose 4.01 percent (69.86 points) to end at 1,810.27 while the more liquid Milanka went up 4.65 percent (89.33 points) to close at 2,008.85.

Turnover was 245 million rupees.

“It’s mainly retailers who are buying into the market,” said Srimal Liyanage of Lanka Securities. “But we’re not sure whether this can be sustained because we do not see major funds in the market.”

Investors bought into both heavyweight stocks, especially in the banking and diversified sectors and plantations, as well as low value counters.

“Retail investors have got more active most probably with the develoments on the war front and also because the central bank reduced its penal interest rates,” Liyanage said.

The military has made significant gains in the two-decade old war against the Tigers and say they are on the verge of finishing off the rebels, having cornered them in the island’s northeast.

Investors also expect a reduction in interest rates, the main factor seen killing the stock market, after the central bank last Monday cut the rate on its unrestricted discount window by 200 basis points to 17 percent.

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