Stocks at the Colombo Stock Exchange (CSE) had an eventful and volatile week due to events that took place in New York and Brussels. On the evening of October 16 (Friday), while the markets were closed in Colombo, Raj Rajaratnam and five others were arrested on charges of insider trading and other related activities. The news made headlines across the financial media as this was the first time a billionaire fund manager was arrested and the involvement of high profile figures from Intel Corporation and McKinsey the consultancy firm amongst others.
Raj Rajaratnam is the founder of the Galleon Partners hedge fund and is one of the largest foreign investors in the country. Forbes magazine has valued his net worth at US$1.3 billion though he himself has claimed that the figure was close to US$200 million. He has invested his personal money and also that of his funds in many of the blue chip companies in Sri Lanka. His holding includes such established names such as John Keells Holdings, Chemical Industries, Commercial Bank, DFCC Bank, NDB and amongst many others. His involvement in the capital markets of Sri Lanka and its companies was a key marketing advantage that was exploited by many stock brokers and corporate leaders on their campaigns to raise finance in the past. The decision regarding his local investments is still up in the air with no word from him or his office yet, though he is out on bail of US$100 million.
The market on Monday the 19th reacted badly by coming down as much as 4% in early morning trade but recovered to close down by 1.6%. That evening, officials from the European Union in Brussels cited the country’s poor human rights record as a reason for non-extension of the trade concession known as the Generalised System of Preference Plus (GSP+). Though the trade concession covers many products and industries, many feel that impact will be felt most in the apparel and ceramic industries. Both industries are suffering the impact of the global economic crisis and rising production costs. Though the EU’s action will affect a handful of listed companies, the wider implications are for employment, trade and investment. The news of the Brussels decision, which was made on the Monday in the evening Colombo time, brought down the market by 3.24% on Tuesday as panic and margin calls forced prices down. On Wednesday the ASI recovered by 1% to close over the 3000 mark but that was after falling by more than 100 points in early morning trade.
Long-term and liquid investors brought into the market propping up prices of stocks that were oversold. On Thursday and Friday the market saw lacklustre trading as turnover fell with most investors taking a cautious approach. Overall the ASI lost 75 points, or 2.5% to close at 3,057 while the MPI lost 113 points or 3.3% to close at 3434. Turnover suffered as institutions both local and foreign stayed out. Turnover for the week was Rs 3.3 billion (daily average of Rs 658 million) while in the week that ended on the 16th , turnover was Rs 6.4 billion (daily average of Rs 1.3 billion). Net foreign flow was a negative of Rs 81 million while the last week saw an inflow of Rs 1.1 billion. The value of all listed companies came down by Rs 24 billion with the market cap now standing at Rs 982 billion.
The market dip ignored much of the good news that flowed. One was the record US$4.5 billion in Gross Official Reserves, which means that the country has 4.4 months of imports covered. The other was completion of the buyout by the London Stock Exchange group of Millennium IT and Tigo’s purchase by Etisalat of United Arab Emirates. LSE agreed to pay US$30 million for the exchange software maker, while Etisalat paid US$155 million for the country’s pioneer cellular network. Tigo was previously known as Celltel and was owned by Millicom. There was also news that Etihad, the Abu Dhabi based airlines, will resume flights to Colombo. The airline pulled out of the country when the conflict with LTTE intensified, but will now touch down at the Katunayake Airport four times a week.
On the market itself blue chip companies saw the highest volatility. In the banking sector, Commercial Bank closed down Rs 5.75 to Rs 184.50, DFCC bank lost Rs 11.25 to end at Rs 153.00, HNB was down Rs 1.75 to close at Rs 168.25. Sampath Bank lost Rs 8.00 to close at Rs 185.00 and Seylan Bank lost Rs 3.00 to close at Rs 41.75. Of the diversified companies sector, John Keells Holdings lost Rs 8.00 to close at Rs 144.50, while Carson Cumberbatch lost Rs 12.75 to close at Rs 347.00.
Aitken Spence was unchanged at Rs 900.00 a share. Ceylon Theatres lost Rs 2.25 to close at Rs 53.25. In the footwear and textiles sector, Kuruwita Textile lost Rs 3.50 to close at Rs 32.50, a reaction to the Brussels decision though Hayleys MGT gained Rs 1.00 to close at Rs 36.25. In the manufacturing sector, Dankotuwa Porcelain and Hayleys Exports both lost Rs 1.00 to close at Rs 8.50 and Rs 26.50 respectively. Of the Telecom companies, Dialog Telekom lost 25 cents to close at Rs 7.25 while Sri Lanka Telecom was unchanged at Rs 44.00.