Interest rates may rise in mid 2015, while ASI could make further gains

[BackstageTop contributor]

Interest rates may rise in mid 2015, while ASI could make further gains

July 7, 2014 2:00 am

Ceylon FT:
As projected, the market interest rates as well as the secondary market bond yields have continued its downward trend and in turn boosted the trading activities of the Colombo Bourse, a weekly report said.


However, on the flip side we expect the interest rates to rise towards 1/2Q2015E on account of a possible pick up in credit growth and investments outpacing the growth in domestic savings due to the continuous fall in interest rates in 2H2013 and the projected drop in rates in 2014E.


According to the weekly review by Asia Securities Research, the rise in interest rates will also be supported by growth in investments outpacing the growth in aggregate incomes and in turn exerting pressure on rates to rise marginally. "This expected change in the trade and interest rate cycle could possibly materialize towards the end of 2H2015E. Further, we expect the rates to stabilize once reaching equilibrium by undergoing a moderate increase and remain relatively stable during 2016E."


It is important to note in this regard that the market activity will be further boosted by this trend rather than getting negatively affected. Asia Securities Research further said this is so given that the ASI during this phase of the trade cycle will respond to the growth in market earnings rather than to the moderate increase in interest rates.


"This would be a natural outcome of reallocation of capital from savings towards investments. Hence, we expect the ASI to perform even better in 2015E despite a possible increase in interest rates towards the second half of 2015E."
The ASI continued the previous week's momentum as it witnessed sharp gains on most of the trading days and closed firmly on the positive territory poised to cross the 6,500 mark. As a result the ASI soared 114.0 points WoW to close at 6,477.5 points (+1.8%), whilst the S&P SL20 Index gained 89.8 points WoW to close at 3,610.7 points (+2.6%). Indices benefited mainly on the back of price gains made by Ceylon Tobacco Company (+4.8% WoW), Commercial Bank of Ceylon (+4.5% WoW), John Keells Holdings (+2.3% WoW), Hatton National Bank (+6.1% WoW) and Sri Lanka Telecom (+3.3% WoW).


The bourse recorded impressive daily turnover and volumes during the week, as market turnover and volumes stood above the 12-month averages on all trading days with both local and foreign investor participation. Large scale transactions on the normal board and crossings board boosted daily turnover along the week, while several counters crossed their 52-week high price and progressed forward on high investor expectation. The week witnessed renewed foreign participation as total net foreign inflow sharply rose to Rs 2,884.9 million cf. Rs 383.5 million recorded during the previous week, extending the YTD total net foreign inflow to Rs 8.87 billion.
John Keells Holdings emerged as the week's top turnover contributor adding c. 30.7% to the week's total turnover boosted by 31 crossings and active retail, institutional and high net worth participation in the normal board across the week, while the share gained c. 2.3% WoW and closed at the volume weighted price of Rs 225. Further, the daily average turnover for the week surged to Rs 2,298.5 million against Rs 812.9 million recorded during the previous week, which is a 182.8% WoW gain.


PCH Holdings emerged as the week's top volume traded share with a total of c. 151.4 million shares with high retail, institutional and high net worth trading, while the share gained an astounding c. 130.8% WoW and ended at Rs 3.0. Further, crossings were witnessed in counters such as Hemas Holdings, Asiri Hospitals, Hatton National Bank, Sunshine Holdings and so forth during the week. Meanwhile, the week recorded total share volume of 652.7 million against 357.0 million recorded in the previous week, which is a 82.8% WoW gain.
In addition, Ceylon Tea Brokers, Central Industries and Nawaloka Hospitals made interim and final dividend announcements during the week. Further, Adam Investments made a mandatory offer to acquire the remaining stake in PCH Holdings and PC Pharma at Rs 2.0 and Rs 1.7 respectively. Meanwhile, United Motors Lanka made an announcement regarding sub-division of its shares, where existing two ordinary shares will be split into three ordinary shares.

[DocStockTop contributor]

Interesting.
But a rate rise will occur more sooner me thinks. possibly end 2014. Agree that though rate dropping was a stimulus the rise will have minimal impact on market.

[slstockVeteran]

There maybe a further small cut before any rise.

Interesting.
But a rate rise will occur more sooner me thinks. possibly end 2014. Agree that though rate dropping was a stimulus the rise will have minimal impact on market.

[NuinthTop contributor]

There maybe a further small cut before  any rise.

Interesting.
But a rate rise will occur more sooner me thinks. possibly end 2014. Agree that though rate dropping was a stimulus the rise will have minimal impact on market.

If it is another rate cut, good for bank & finance. Member will more active/discuss about ESL & CFVF.

[sereneTop contributor]

Everything seems to be poised for couple of very active quarters. Hope that political agendas will not come in to the fore and destroy all the good sentiments.