THE PROVIDENT Tomorrow s investment decisions, today

Transcription

1 THE PROVIDENT Tomorrow s investment decisions, today Candor2Research Final countdown arrives for the most closely watched Fed decision Sri Lanka Economy grew by 6.71% in 2Q2015 Sri Lanka s total economy output as measured by GDP has surged to LKR 2,064.64b in 2Q02015 recording a 6.71% growth under new base year The Service sector stood as the prime contributor for the GDP with 61.2% share whilst industry & agriculture shared the GDP by 23.5% and 7.5% respectively. Following graphs showcase the growth rates of each major economic activity in the 2Q2015. Accordingly, the service, agriculture and industry sectors grew by 7.9%, 5.0% & 2.0% respectively. 2Q GDP Movement (2010 Base year) Agriculture- Growth rates (%) 2,500,000 2,000,000 1,500,000 1,000, , % 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% GDP (LKR.Mn) GDP Growth Industry- Growth rates (%) 25.0 Service- Growth rates (%)

2 Final countdown arrives for the most closely watched Fed decision The most closely watched and arguably most analyzed Federal Reserve meeting since the 2008 financial crisis gets underway today with the Fed s too-close-to-call decision on interest rates on the line. The Fed decision on rate hike is expected to be released at GMT. The following opinions and surveys can be analyzed in order identify the probability of the Fed rate hike; Gold price rallies and it could move higher, traders reacted to dollar move and prediction of Fed hold, which should prompt further upwards move. Gold recorded its biggest one-day rise in around a month on Wednesday, as new inflation data prompted a big bet on the Federal Reserve holding interest rates and held the US dollar in check. If the decision goes as most investors and now even a slim majority of economists in most surveys expect and borrowing costs are not hiked this month, these trends should continue. It will then be a case of how long the rally can last and how high prices can go. The precious metal rose to $1,119 on the Comex division of the New York Stock exchange, a 1.5 per cent rise that Market Watch notes marks the most significant advance in close to a month to the highest settlement this week. "The prospect of a Fed rate hike is still very low, so things are reacting the way you'd expect them to react if there s no hike," Dave Meger, director of metals trading at High Ridge Futures in Chicago, told the Wall Street Journal. (Source: ) Global banks and investment funds see the chances for a rate increase as essentially a toss-up, although most experts see a slightly higher probability for no change in monetary policy. In a Reuters poll of 80 economists, 45 said the Fed would keep its benchmark interest rate between zero and 0.25 percent, while 35 expected a hike. Among primary dealers, 12 banks expect it to hold steady and the remaining 10 expect a rate increase. Unemployment falling, inflation subdued The Federal Reserve is mandated by Congress to consider both unemployment and inflation when formulating monetary policy. The U.S. unemployment rate fell to 5.1 percent in August, a level the Fed sees as likely to boost both wages and inflation, but average hourly earnings have risen only 2.2 percent in the past year. However, even with the federal funds rate target at percent since 2008, there has been little sign of U.S. inflation while economic growth was running at a 3.7 percent annual pace in the second quarter of this year. (Source: Futures traders see only a 34 percent chance that policy makers will raise rates on Thursday at the same time 54 of 113 economists surveyed by Bloomberg predict some kind of increase. (Source: Bloomberg News) Further to the above opinions & surveys, the following 3 day chart (Sep 14-17) also explains the reaction of Gold (green Line), Bloomberg dollar spot index (white line) & MSCI Emerging Markets Index (Purple line) with regard to Fed rate hike expectations. The dollar weakened whilst Gold recorded its biggest one-day rise in around a month coupled with a sharp rise in MSCI Emerging Markets Index witnessed on 16 th September

3 Source : Bloomberg Therefore, based on the above analysis we presume the probability of a significant rate hike is very low at this point. Hence, we believe the Asian Emerging Markets will positively react based on the above identified correlation. ( Analyst : Mohamed Shadhir Jannath) LB Finance PLC (LFIN) witnessed a sharp fall in share price by 5.12% during the day to reach at LKR The expected slower growth in leasing book due to (1) Increased prices in vehicles (2) reduced loan to value ratio to 70% have caused downside risk for the counter. Therefore, we believe the upside potential which we anticipated from LFIN through The Provident dated 30 th July 2015 appears remote in short term. Nevertheless, the sound capital adequacy ratio of 15.33% coupled with the excess liquidity position of nearly LKR 2.6b are the preliminary plus points of LFIN in reshaping their lending strategy for next few quarters. Therefore, we believe the counter may lose its positive direction in short-term amidst the surrounding challenges. Hence, an investor with a short term target could exit the share whilst a medium to long-term investor could still stick with LFIN. Counter currently trades at 6.5x on FY2015/16E earnings with a PBV multiple of 1.6x. (Please refer technical analysis section for a technical view). Peoples Leasing PLC (PLC) too affected with the introduced new loan to value ratio, dipped by 1.77% to reach at LKR with a traded quantity of 2.5m shares. Counter trades at 7.79x trailing PER whilst PBV stands at 1.5x. Given the PLC s strong business capabilities, we believe the counter may see investor s attraction in current price range since PLC hits into its oversold territory. (Please refer technical analysis section for a technical view). Nawaloka Hospitals PLC (NHL) breaks above its major resistance level LKR 3.50 and hits into its overbought territory. Counter closed the day at LKR 3.70, up by 2.78% with a traded quantity of 1.1m shares. (Please refer technical analysis section for a technical view). Lanka Indian Oil PLC (LIOC) breaks away from its trend support pattern. However, the stock indicates a strong support at LKR Counter closed the day at LKR 39.90, dip by 0.75%. (Please refer technical analysis section for a technical view)

4 ASPI/S&P SL20 T/O (LKR m) Candor2Research Market Statistics o o o o o Market closed Thursday on a negative note with both indices losing ground. The ASPI lost points (-0.33%) to end the day at 7, points whilst the S&P SL20 lost points (-0.37%) to end the day at 3, points. Turnover was LKR 658.0m against last Thursday's turnover of LKR 588.9m. Notable Contributors: Hemas Holdings (LKR101.7m), People's Leasing (LKR 57.5m), Tokyo Cement (non-voting) (LKR 51.8m), ACL Cables (LKR 45.3m), and Textured Jersey (LKR 38.3m) made notable contributions to the days' turnover. Retail Participation: Retail investor interest was seen in People's Leasing, Tokyo Cement (non-voting), Asia Asset Finance, Textured Jersey, and Hemas Holdings. External Funds: Contribution from external funds accounted for 36.64% of the total market activity, with a net inflow of LKR 29.6m. 8,000 6,000 4,000 2,000 - CSE All Share Index (ASPI) S&P Sri Lanka 20 Index Value Of Turnover (LKR m) Foreign Purchase (LKRm) Foreign Sales (LKRm) Net (LKRm) Volume Of Turnover (m) Market Cap (LKRb) Market Valuation PER (x) PBV (x) DY (%) ASPI, S&P SL20 and Turnover ASPI S&P SL20 Turnover 11-Sep 14-Sep 15-Sep 16-Sep 17-Sep 1, Sep 16-Sep % ch YTD % 7,114 7, % -3.19% 3,885 3, % -5.47% % % % % % 3,022 3, % % % % Source: CSE 0 Top Gainers o office Equipment (LKR 2,789.80, %) o Kalamazoo Systems (LKR 3,901.80, +9.82%) o Hotel Sigiriya (LKR , +9.81%) o Blue Diamonds Jewellery Worldwide (LKR 1.30, +8.33%) Top Losers Key Deals: The following crossings took place during the day: a) 500,000 shares of Tokyo Cement (non-voting) changed hands at LKR b) 1,111,111 shares of Hemas Holdings changed hands at LKR o Ceylon Hospitals (Durdans) (LKR , %) o PCH Holdings (LKR 2.10, -8.70%) o Serendib Engineering Group Plc (LKR 12.30, -6.82%) o Browns Investments (LKR 1.50, -6.25%) - 4 -

5 Net Foreign Inflow/ Outflow Top 10 - Net Foreign Purchases Top 10 - Net Foreign Sales Company Name Net change in Foreign holding (Qty) Net Foreign Inflow (LKR) Company Name Net change in Foreign holding (Qty) Net Foreign Outflow (LKR) TOKYO CEMENT[X.0000] 1,261,609 51,473,647 PEOPLES LEASING (2,424,461) (54,065,480) COMMERCIAL BANK (+) 63,549 10,536,424 HNB (+) (73,215) (15,741,225) CEYLON TOBACCO (+) 7,754 7,598,145 NAT. DEV. BANK (+) (17,062) (3,823,594) EAST WEST 303,285 5,155,845 LOLC (30,000) (2,946,000) ROYAL CERAMIC 30,994 3,719,280 ACL (17,315) (1,871,752) HEMAS HOLDINGS 39,778 3,500,464 SINHAPUTHRA FIN (48,500) (892,400) HAYLEYS 9,945 3,270,911 SWISSTEK (13,980) (802,452) PIRAMAL GLASS 486,606 3,211,600 RICH PIERIS EXP (3,215) (707,300) LANKA HOSPITALS (+) 61,080 3,054,000 FLC HOLDINGS (400,000) (560,000) LB FINANCE 25,000 2,890,000 BROWNS BEACH (12,121) (430,296) 52 Week High/ Low stocks 52 Week High Stock 52 Week Low Stock LKR LKR INDUSTRIAL ASPHALTS CEYLON CEYLON INVESTMENT PLC KALAMAZOO SYSTEMS PLC 4, EDEN HOTEL LANKA PLC OFFICE EQUIPMENT PLC 2, CITRUS LEISURE PLC

6 ASPI ASPI closes slightly below yesterday s projected support Daily RSI 35 (Neutral) Weekly RSI 45 (Neutral) Support 01 ( ) Support Support Resistant Resistant Resistant LB FINANCE PLC (LFIN) LFIN breaks away from its upward trend pattern & continues to move within its downward price channel amidst oversold conditions. Daily RSI 30 (Oversold) Weekly RSI 55 (Neutral) Support 01 LKR Support 02 LKR Resistant 01 LKR Resistant 02 LKR

7 UNITED MOTORS LANKA PLC (UML) UML breaks below its medium term trend support & trades within its Fibonacci support levels. Daily RSI 37 (Neutral) Weekly RSI 46 (Neutral) Support 01 LKR Support 02 LKR Resistant 01 LKR Resistant 02 LKR PEOPLE'S LEASING & FINANCE PLC (PLC) PLC hits into its oversold territory. Daily RSI 28 (Oversold) Weekly RSI 39 (Neutral) Support 01 LKR Support 02 LKR Resistant 01 LKR Resistant 02 LKR

8 LANKA IOC PLC (LIOC) LIOC breaks away from its trend support pattern. However the stock indicates strong support at LKR Daily RSI 52 (Neutral) Weekly RSI 51 (Neutral) Support 01 LKR Support 02 LKR Resistant 01 LKR Resistant 02 LKR NAWALOKA HOSPITALS PLC (NHL) NHL breaks above its major resistance level LKR 3.50 and hits into its overbought territory. Daily RSI 72 (Overbought) Weekly RSI 71 (Overbought) Support 01 LKR 3.60 Support 02 LKR 3.50 Resistant 01 LKR 3.80 Resistant 02 LKR

9 Local Economy Domestic Exchange Rates Treasury Bill Rates Today Prev. Close Currency Buy (LKR.) Sell (LKR.) Buy (LKR.) Sell (LKR.) Current Previous Dollar (USA) Month Pound (UK) Month Euro (EU) Year Franc (Switzerland) Dollar (Canada) Dollar (Australia) AWPLR Dollar (Singapore) Current Previous Yen (Japan) Weekly Global Economy Global Commodity Prices Global Equity Indices Commodity Today Prev. Close Change % Index Today Prev. Close Change % WTI Oil ($/bbl) % DOW JONES 16, , % BRENT Oil ($/bbl) % S&P 500 1, , % Gold Spot ($/t oz) 1, , % NASDAQ 4, , % Silver Spot ($/t oz) % NIKKEI 18, , % COMEX Copper (USD/lb) % FTSE 100 6, , % ICE Sugar (USD/lb) % DAX 10, , % ICE Cotton (USD/lb) % HANG SANG 21, , % Candor Fund Prices as at 17/09/2015 (LKR) Candor Fund Performance Summary as at 31st Aug 2015 Fund Unit Selling Price Unit Buying Price CANDOR GROWTH FUND AMANA-CANDOR SHARIAH FUND CANDOR MONEY MARKET FUND AMANA-CANDOR SHARIAH INCOME FUND Fund Inception Date From Inception 1 Yr YTD 3M 1M Candor Growth Fund 3-Feb % 15.82% 5.99% 5.24% - Amana-Candor Shariah Balance Fund 3-Dec % 12.85% 8.45% 4.95% - Candor Money Market Fund* 17-Sep % % 6.73% 6.77% Amana-Candor Shariah Income Fund* 2-Nov % % 4.11% 3.97% * performance data are annualized - 9 -

10 Candor Research Contact us Sales Mohammed Riyas Director Sales / Chaminda Mahanama Assistant Vice President Equities / Auburn Senn Assistant Vice President - Equities / auburn.senn@candorh.com Vidushan Premathiratne, CFA Assistant Manager - Capital Markets / vidushan.premathiratne@candorh.com Damayanthi Madawalage Assistant Manager Equities / damayanthi.madawalage@candorh.com Dilanjan Perera Assistant Manager Equities / dilanjan.perera@candorh.com Vishvajith Nayakarathne Investment Advisor / vishvajith.nayakarathne@candorh.com International Desk Indula Wickramasinghe Executive- Business Development / indula.wickramasinghe@candorh.com Research Pasindu Perera Head of Research / pasindu.perera@candorh.com Usama Jiffry Assistant Manager Research / usama.jiffry@candorh.com Shadhir Jannath Assistant Manager Technical Analysis / shadhir.jannath@candorh.com Ranuka De Silva Assistant Manager Research / ranuka.desilva@candorh.com Dushan Virantha Research Analyst / dushan.virantha@candorh.com Awarded the Commendation certificates for both the Best Stockbroker Research Team and Best Equity Research Report 2014/15 at the CFA Capital Market Awards. (Sources: LBO.LK, CSE.LK, CBSL.LK, DailyFT.LK, LBR.LK, ISLAND.LK, DAILYNEWS.LK, SUNDAYTIMES.LK, Bloomberg, Reuters) Disclaimer The report has been prepared by Candor Equities limited (CEL). The information and opinions contained herein are based upon information obtained from sources believed to be reliable and made in good faith. Such information has not been independently verified and no guarantee, representation or warranty, express or implied is made as to their accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only, and the description of any company or their securities mentioned herein is not intended to be complete and this document is not, and should not be construed as, an offer, or solicitation of an offer, to buy or sell any securities or other financial instruments.