Hysteria!

*Hype fuels shortlived upswing at the bourse while some freed from losses * Investors advised to be cautious and not lose sight of fundamentals

The Colombo Stock Exchange surged on Wednesday on news that Dr. Nalaka Godahewa took over the reins of the SEC, but brokers said many investors may have lost sight of fundamentals, while those managing loss making portfolios may have been freed. The hysteria at the bourse is expected to be short lived and investors are warned to be cautious so as to avoid being burned.

While some investors and their crony brokers have ignored the macroeconomic fundamentals in explaining the recent slump at the bourse, preferring to blame the regulator instead, there are many investors and brokers who do otherwise.

As shown previously in these pages, the build up of the credit bubble fueled the rise of the stock exchange, apart from the post-conflict sentiments, and when the Central Bank took a policy u-turn earlier this year to contain a balance of payments crisis, the rupee fell and interest rates tightened. High interest rates and liquidity constraints affected the bourse, which has fallen nearly 16 percent this year.

"Is it another bull run? We would describe the day as an ideal trading opportunity with the penny play taking the key lead. The day was not for strategic investors. Many such similar runs had driven the bourse to face strict reforms of regulations," Softlogic Equity Research said yesterday (29).

"Many retail investors have been hyped with the appointment of the new board at SEC as they lose focus on attractive valuations and fundamentals. However, the market’s past months’ slow run and discounted valuation happily moves it into a welcoming position for any such up runs.

"There are amongst them a crowd who are stuck with a loss making portfolio and we believe today’s trading has set many free whilst a number looks to enjoy their gains. We also rate today’s run as to be short lived and not to lose focus on the valuations and the fundamentally sturdy counters though feasting on common hysteria as today’s would be harmless as you remain hawk eyed on the move and avoid buying on top of the movement and selling at the bottom of the movement," Softlogic Equity Research said.  

"The market performance for the day assessed the sudden resurge of the retail investor community. The top turnover list defined predominantly of the low-mid caps. Volume levels heaved to 44 mn shares with turnover at LKR444 mn propelled mainly by the small players. The ASPI closed with a 11.5 point gain. 

Environmental Resource Investments [Normal, W : 0003 & W : 0006] (+3.2%, +1.9%, +3.7%), Colombo Land & Development (+0.8%), Kalpitiya Beach Resorts [+8.2%], Citrus Leisure [Normal & W : 0019]  (-1.0%, -6.9%), Lanka Hospital Corporation (-1.05%), Panasian Power [-0.5%], HVA Foods (+0.72%), Free Lanka Capital Holdings (+4.4%), Ceylon Grain Elevators (+0.9%), Dankotuwa Porcelain (+5.1%), Three Acre Farms (+0.0%), Regnis Lanka (+0.31%) and Waskaduwa Beach Resorts (+2.6%) flickered on the top trading screen as each share gained 6.1% on average at their intra-day high points. However, many of this herd instinct cluster provoked selling after reaching satisfactory high points (as the dips above indicate) due to lack of investor confidence to hold on their investments."

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