p p Today's Turnover (LKR mn) Annual Average Daily Turnover (LKR mn) Volume (mn) Annual Average Daily Volume (mn ) Market Capitalization (LKR bn) Net Foreign Inflow / (Outflow) [LKR mn]- Foreign Buying (LKR mn) - Foreign Selling (LKR mn) YTD Net Foreign Inflow / (Outflow) [LKR bn]Thursday, January 03, 2013 892.6 % Change Point Change Today 31.2 518.6 0.82 % 0.43 % YTD Performance S&P SL 20 Index40.82,201.2 -105.4 -0.1 51.7157.1 ASPIS&P SL 20 Index+ 46.66 + 13.375,730.45 3,104.25 ASPI 1.5% 0.6% Level 23, East Tower, World Trade Centre, Colombo 01Tel: +94 11 727 7000, Fax: +94 11 727 7099 Email: research@equity .softlogic.lk CSE Diary for 03.01.2013 The market extended its stride in the green with positive sentiments stemming from the revival in retail activity. The ASPI crossed the 5,700 mark today while its positive sprint led the index to a peak at 5,738.84 points (+55 points), before settling at 5,730.45 (+46 points), the highest since 12.10.2012. Two counters gained for every one that dipped denoting major contributions from Ceylon Tobacco Company (+1.0%), People’s Leasing and Finance (+6.1%) and NDB Capital Holdings (+5.6%). The S&P SL20 index secured a 13 point gain at 3,104.25 points, the highest since 10.10.2012. Banking sector player, Hatton National Bankemerged to spearhead the day’s turnover list during mid-day trading on the back of a single block of c.117k shares which was handled in the market at LKR147.0. Following the on- board block were three crossings amounting to c.644k shares which were transacted at a similar price. Interest in heavyweight, John Keells Holdings, led the counter to touch a peak of LKR220.0 at which it encountered two off-board blocks totaling 200kshares during the final trading hour. Interest inPeople’s Leasing and Finance and its subsidiary, People’s Finance, heaved up as each advanced a solid 7.6% and 5.0% at their intra-day high levels while the latter touched a new 52-week high at LKR37.1 supported by strong buying interest. The retail hunt surfaced as Nation Lanka Finance (-1.8%) secured its stance in the top turnover slot while some selling pressure was witnessed in Asia Asset Finance (+0.0%)and Central Investment & Finance Company (-2.0%) following yesterday’s rally. Swarnamahal Financial Services witnessed several mid –sized parcels accumulating to around 545k shares being taken in the market as it closed the day with a 12.2% gain at LKR3.7. Further penny stocks Sierra Cables and Free Lanka CapitalHoldings too gathered some retail participation. Colombo Dockyard witnessed renewed buying interest today having recorded a few trades at its peak of LKR230.0 (+4.5%). Interest emerged in S&P Caliber counters; Asian Hotels and Properties and Aitken Spence Hotel Holdings with both depicting some focus during early trading denoting gains of 1.7% and 2.7% at their respective peaks of LKR76.4 and LKR75.0. Gains in Ceylon Tobacco Company extended on thin volumes, leading the counter to renew its 52-week high at LKR849.5 (+2.1%) while TheLion Brewery of Ceylon touched a 52-week peak at LKR296.0 (+3.8%). Asian Stocks Rise on US Manufacturing, China Services; European Stocks Rise Amid Swiss Rally on US Budget Deal: Asian stocks rose, pushing a regional equities index to its highest level in 17 months. The MSCI Asia Pacific Excluding Japan rose 0.2% to 477.17 as of 11:33 a.m. in Hong Kong. The Stoxx Europe 600 Index gained 0.4% to 286.32 at 8:08 a.m. in London. Oil Slips from Highest in Three Months on Signs Gains Excessive: Oil slid for the first time in three days in New York on speculation that its surge to the highest level in three months yesterday may have been excessive. West Texas Intermediate for February delivery dropped as much as 63 cents to USD92.49 a barrel in electronic trading on the New York Mercantile Exchange. Brent forFebruary settlement fell 41 cents to USD112.06 a barrel on the London-based ICE Futures Europe exchange.Retail activity rebounds;ASPI at its highest since12.10.2012…
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Housing Development Finance Corporation Bank [HDFC: LKR52.5]: Mr.
Nimal Mamaduwa has been appointed as the General Manager/CEO of HDFC
with effect from 1st
January 2013.
Infrastructur Developers [IDL: LKR179.0]: Board of IDL has decided topurchase the remaining 10% of Serendib Engineering Agencies (Pvt) Ltd shares
representing 52,936 ordinary shares for a total consideration of LKR15,388,890
from Mr. S C De Silva. An Extraordinary General Meeting would be convened on
the 28th
January 2012 to obtain the sanction of the shareholders for the proposed name change of the
company to Serendib Engineering Group PLC.
DFCC Bank [DFCC: LKR115.5]: Mr. T K Bandaranayake, Director, retired with effect from today on reaching
70 years of age.
Capital Alliance Finance [CALF: LKR20.3]-Rights Issue:
Disclosure on Related party dealings:
Local News
Sri Lanka to add Yuan bonds to forex reserve assets: Sri Lanka will diversify its foreign reserve assets to
reflect government debt and Yuan denominated bonds are a candidate, Central Bank Governor Nivard
Cabraal said. Sri Lanka has borrowings mainly in US dollars, Japanese Yen, Special Drawing Rights and Euro
but China has become a large lender over the past five years. Though loans were initially US dollar
denominated, over last year several large Yuan denominated loans have been approved. "Where we have
loans we will keep in mind when we are investing also," Cabraal told LBO. Sri Lanka's Central Bank had
USD6.5 bn of foreign reserves by the end of 2013. Sri Lanka already has Yen and Euro reserve assets. Though
Yen bond have low yields currency appreciation gives returns, Cabraal said. The Yen has consistently
appreciated against the US dollar since the collapse of the Bretton Woods system in 1973 from about 300 to
the US unit to about 80 now, suffering domestic deflation at times. Japan appreciated its currency, suffering
domestic deflation at times partly due to pressure from US Mercantilists who believed that a trade deficitcould be cured by Yen appreciation. The Yuan is now also being appreciated under US pressure. It has
appreciated from 8.2 to the US dollar in July 2005 to about 6.2 in December 2012.
[Source: www.lbo.lk]
Sri Lanka should cut losses, bank credit to state energy utilities-CB Governor: Sri Lanka should cut losses
and bank credit taken by Ceylon Petroleum Corporation and Ceylon Electricity Board with better pricing in
2012, Central Bank Governor Nivard Cabraal said. Sri Lanka does not have a mechanism to regularly adjust
important energy prices, which are based mostly on imported petroleum and pass through cost to the
economy quickly, due to state intervention in pricing. A surge in unproductive credit to state energy utilities
as a drought hit hydro power generation amid rising petroleum prices, worsened a credit bubble from mid
2011 eventually triggering a balance of payments crisis. In early 2012 energy prices were raised as part of a
package of measures to recover from the balance of payments crisis. "In spite of the significant price revision
however, credit to public corporations continued to increase particularly to the two major corporations the
CEB and the CPC," Governor Nivard Cabraal said. "I believe that is an area the government as well as the
policymakers as far as the CEB and CPC are concerned, will have to look at during the course of 2013."
Analysts have identified sudden surges in credit to state enterprises as a key factor that can de-stablize the
economy in the future, as it had done repeatedly in the past.
[Source: www.lbo.lk]
Sri Lanka aims at inflation of 7.0% in 2013: Sri Lanka's Central Bank aims to inflate the economy by about
7.0% in 2012 based on a monetary targeting framework where money supply and credit growth is taken into
account. Delivering a monetary policy roadmap for 2013 Governor Nivard Cabraal said the Central Bank was
will continue to aim for mid-single digits inflation over the medium term. In 2012 the central bank's record of generating mid-single digits inflation was thrown off track after tens of billions of rupees liquidity was
injected into the banking system triggering a balance of payments crisis ending the year with 9.2% consumer
inflation. Under indicative targets unveiled on January 02, the Central Bank is aiming at inflation of 7.0% in
2013, moving down to 5.0% in 2015 measured by the gross domestic product deflator.
[Source: www.lbo.lk]
Sri Lanka to have 'Goldilocks' reserves, IMF deal talks ahead: Sri Lanka will not accumulate too much
foreign reserves, but will maintain an amount that is comfortable for the economy and a deal with the
International Monetary Fund is also on the cards, Central Bank Governor Nivard Cabraal said. Sri Lanka
would have collected with about USD6.8 bn of foreign reserves by the end of 2012 which is equal to about
4.4 months of imports, estimates by the Central Bank showed. "During the year our foreign reserveaccumulation was prudent, not too excessive," Cabraal said Wednesday. "We did not want to go into a
situation where we had 7 or 8 months of reserves. At the same time it was not too slow either ." Cabraal said
he was reminded about the story of Goldilocks and the three bears, where she was comfortable in the bed
of baby bear. "Sometimes it is not easy to find the exact level of comfort that is needed ," Cabraal said. "I think
we have got the right balance. Not too much, not too little. We will be looking at it carefully and moving on
we will ensure that Goldilocks is comfortable." By end November 2012 Sri Lanka had USD6.49 bn of reserves
or about 4.1 months of reserves.
[Source: www.lbo.lk]
Rubber prices edge up in New Year’s first auction: Rubber prices showed slight improvements during the
first auction for the year 2013, boosted by recovering demand in Japan and other regional markets. LatexCrepe 1x traded at an average price of LKR400 per kilogram, against a flat LKR382 per kilogram on December
20, whilst Ribbed Smoked Sheet 1 (RSS 1) traded at a flat LKR395 per kilogram, as compared with LKR375 per
kilogram previously. “The prices are purely being driven by improvements in Japan and regional markets and
we have seen prices rapidly improve over the whole of last week. The last quarter of 2012 was still fairly
challenging but overall, the first quarter of this year looks to be positive so far ,” Director at Forbes and
Walker Commodity Brokers, Damitha Perera said. Rubber exports generated LKR1.1 bn during the month of
October last year, down 38.2% year-on-year. Exports from January to October amounted to LKR13.7 bn in
2012, against LKR20.3 bn during the same period in 2011. In terms of production, Sri Lanka recorded 128.6
mn kilograms of rubber production between January and October last year, whereas in 2011, the country
produced 132.4 mn kilograms during the same period. Improvements in prices at local auctions
corresponded with a price rally in international markets as China, the world’s largest consumer of rubber,likely looking to restock before its week-long New Year in early February. On the production side, main
producing countries like Thailand, Indonesia, Malaysia and Sri Lanka are expected to see supply levels fall as
they enter the annual dry season, resulting in less production.
[Source: www.dailymirror.lk]
Foreign Direct Investment up to USD2 bn in 2012: With the dawn of 2013 the prospects for the New Year
seems bright considering the efforts made by the Economic Development Ministry and the Board of
Investments in the previous year. According to BOI reports Foreign Direct Investment (FDI) have doubled
since 2011 and this broadens the width for ample economic developments in the country. FDI being a key
area that concerns the Sri Lankan Economy is said to have increased to USD2 bn in 2012. This could be
considered a great achievement as the Economic Development Ministry through the Board of Investment
has managed to double the FDI compared to 2011’s USD1 bn. Taking a look at the BOI records of the FDI,
from January to June 2012 the FDI had amounted to USD452 mn which is a 9% growth since 2011. The BOI
report said that to achieve this success, 45% of the contribution was from infrastructure, 28% from
production and 19% from hotels and restaurants. The countries responsible for the doubling of FDI in 2012
were Honkong with a contribution of 24% followed by India with a contribution of 22% and Mauritius
claimed the remaining 9% of the FDI. The BPI has further granted approval for tourism projects with FDI,
estimated at USD1,039 mn during the first nine months of 2012. Moving away from the FDI 2013 holds great
opportunities in the job market as well as investment, the job market will be considerably expanded by
LKR42,943 owing to the 160 projects that were approved in 2012. According to the BOI they have also signed
agreements with 112 entrepreneurs from January to September last year and will evoke the possibility of
27,490 job opportunities in addition to the anticipated investment of LKR331,629 mn. According to aperformance report the anticipated amount of investment for the 160 projects approved from January to
September last year is LKR600.64 bn. The BOI has also entered into agreements in respect of 21 enterprises
with an estimated investment of USD384 mn. Meanwhile the Small and Medium Enterprises, which is
another vital sector in the economy is positive that 2013 will be an eventful year considering the
development schemes evoked by the budget 2012. According to an official from the National Chamber of
Commerce there are a number of business forums coming up this year.
[Source: www.dailynews.lk]
Rupee depreciation swelled public debt by LKR278 bn: Central Bank Governor Nivard Cabraal yesterday
revealed that depreciation of the rupee last year bloated the country’s public debt stock by a staggering
LKR278 bn. He noted that for the full year on a net basis the rupee depreciated by about 10%, but since June2012 the currency had appreciated by 5.3%. The latter helped to reduce the value of public debt by LKR158
bn. Cabraal also said that the depreciation-led spike in debt stock will see debt to GDP ratio moving back to
81% in 2012, marginally higher than 78.5% figure achieved in 2011. This, however, is far below 102% figure
in 2004. Forecast is the ratio to come down to 78% this year and to 71% by 2015. The CB Chief said risk
indicators of public debt however have improved at a time when global risk has been rising.
[Source: www.ft.lk]
Global News
Latvian Austerity Fervor Outstrips IMF After Loan Payback: Latvia has cut spending so much that even the
International Monetary Fund says it’s gone too far. Now the Baltic nation has paid off its 2008 bailout loanbefore any other nation, depriving the lender of any say-so over its policies. A drop in the guaranteed
minimum income, which aids the country’s poorest, took effect Jan. 1, two weeks after Latvia paid off the
IMF’s chunk of a USD9.9 bn rescue loan. The fund, better known for making deficit-cutting a condition of its
lending, says the changes risk denting the social safety net. Latvia’s recovery from a slump that erased
almost a fifth of economic output has split world opinion. Nobel prize-winning Economist Paul Krugman has
criticized its austerity measures even as European leaders call them an example for the continent. While
backing fiscal rigor, IMF opposition to the nature of some of the cuts has often put it at odds with the
government. “Now that the IMF monitoring has gone, the government has got its way ,” Alf Vanags, director
of the Baltic International Center for Economic Policy Studies in Riga, said by phone. “The IMF has upheld this
issue and argued against the policies that basically go against poor people and unemployed people, in a way
quite surprisingly, because that’s not their reputation.” [Source: www.bloomberg.com]
UK House Prices Fall 0.1% as Property Market Ends Fragile Year: UK house prices declined last month and
may fall modestly over 2013 because of a weak economic recovery, Nationwide Building Society said. The
average cost of a home slipped 0.1% to 162,262 pounds (USD264,000) in December, the Swindon, England-
based customer-owned lender said in an e-mailed report today. From a year earlier, values were down 1%.
“The outlook remains uncertain,” said Robert Gardner, Chief Economist at Nationwide. “With the economic
recovery expected to remain fairly weak, the housing market is likely to be characterized by low levels of
activity again in 2013, with prices remaining flat or modestly lower.” Britain’s uneven recovery and tight
credit conditions have restrained property-market activity, while a lack of supply has supported prices.
Housing-market forecasters are mixed on the outlook in 2013, with Hometrack Ltd. predicting a 1% declineand Rightmove Plc and the Royal Institution of Chartered Surveyors both projecting a 2% increase. In the
fourth quarter, home prices rose 0.5% compared with the previous three months and were down 1.1% from
a year earlier, Nationwide said. Eleven out of 13 UK regions tracked by the lender had annual price declines
during 2012, it said. London was the best- performing area with a 0.7% gain, while Northern Ireland posted
the biggest decline with 8.2%.
[Source: www.bloomberg.com]
Spanish Inflation Unchanged as Deficit Fight Deepens Recession: Spanish inflation remained unchanged in
December as the recession in the euro region’s fourth-largest economy deepened. Consumer prices, based
on European Union calculations, rose 3% from a year earlier, the National Statistics Institute in Madrid said
today. That matched the median of 17 estimates in a Bloomberg News survey. Spain’s national inflationmeasure showed a 2.9% rise. The Spanish economy probably contracted for a sixth straight quarter at the
end of last year as Prime Minister Mariano Rajoy implemented austerity measures to reduce the euro- area’s
second largest budget deficit. The government expects to miss its target set by the European Union again
this year. The Brussels-based European Commission suspended its budget-cut prescriptions for Spain in
November after the 17- nation euro area fell into a recession. The European Central Bank lowered its
economic forecasts last month, predicting a contraction of 0.3% this year. Several tax increases since Rajoy
assumed power a year ago have contributed to prices rising even as the second recession since 2008 left
over a quarter of the workforce jobless. Stripping out their impact, inflation was 0.9% in November,
according to the Spanish statistics institute, and 0.3% if fresh food and energy were also excluded. The
equivalent measure for December will be published on Jan. 15.
[Source: www.bloomberg.com]
China Poised for 2013 Rebound as Debt Risks Rise for Xi: Incoming President Xi Jinping may find China’s
investment-driven economic recovery in the Year of the Snake jeopardized by mounting risks in the finance
industry. Gross domestic product is poised to expand 8.1% this year, up from 7.7% in 2012, according to the
median estimate of economists surveyed last month by Bloomberg News. At the same time, an increase in
lending fueled by trust companies and underground banks enhances the risk of loan defaults that would be
severely damaging to the economy, Standard Chartered Plc says. The danger is that an economic rebound
lulls policy makers into complacency, delaying market-driven changes needed to reduce dependence on
investment for growth. Xi needs to rev up consumption and services and ensure credit is diverted from
inefficient state enterprises to growth-generating private companies, said David Loevinger, former senior
coordinator for China affairs at the US Treasury Department. “If China tries to sustain growth by adding debt and investing it inefficiently it will be like cotton candy: a short-term high with no lasting value,” said
Loevinger, now an Asia analyst in Los Angeles at TCW Group Inc., which oversees about USD135 bn. “The US
got into trouble because institutions like Fannie Mae (FNMA) and Freddie Mac were too big to fail and had a
toxic mix of private shareholders and implicit government guarantees. China’s financial system is full of
Freddies and Fannies.” Fannie Mae and Freddie Mac (FMCC) are the US mortgage financiers that have been
under US government conservatorship since 2008, after losses on soured loans pushed them to the brink of
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