The market is sinking

Strong corporate growth and buoyant economic conditions should have boosted any stock market in the world. But not Colombo's depressed bourse. Corporates have recorded favourable results in the first half of this year - from a weaker environment in the first half 1999 - while the economy grew by more than a phenomenal seven percent in the same 2000 period, but this surprisingly is not reflected in the stockmarket which for all purposes is sinking.

Analysts and economists say the markets are likely to fall further in the next few weeks in the event of a People's Alliance (PA) victory at the October 10 elections. "The fact is that the private sector and investors still prefer an United National Party (UNP) government and if this is not forthcoming, then the markets could dip further in the coming weeks," an economist at a brokerage noted.

This was evident in the run-up to last December's presidential election when President Chandrika Kumaratunga and her main challenger and UNP leader Ranil Wickremesinghe were heading for a close finish at the polls. Analysts said foreigners, sensing a possible win for Wickremesinghe, returned to the market to make substantial purchases and send the Stock Exchange's benchmark All Share Index (ASI) sharply up to the 600 level from 550 in two to three weeks.

But the PA with some shrewd tactics reversed the trends during the run-up and Kumaratunga - also benefitting from a sympathy vote after she was attacked by a Tamil rebel suicide bomber - won the poll.

Analysts said the markets - despite good economic management by the PA government which has maintained steady fundamentals for growth - still believed the UNP, which introduced market reforms to this country in 1977, is a better manager of the economy and could do better. "The PA is vigorously pursuing the free market system but still has a streak of socialism in its policies," said the economist. Another brokerage analyst noted that while growth has been good under the present government, growth rates have been erratic. This maybe as a result of unclear policies or lack of decision-making on key economic issues.

The economy has grown by 5.5 percent in 1995, 3.8 percent in 1996, 6.3 percent in 1997, 4.7 percent in 1998 and 4.2 percent in 1999. But much of the growth potential in the past few years has been deterred by the ethnic conflict and rising defence spending. While a revival of the market is pinned down by the fact that the private sector would prefer a UNP victory, another factor that could influence market sentiment is uncertainty in the event of a UNP government and a PA president. "Though some people say the constitution clearly demarcates the roles of the president, parliament and the government, it is not so and is bound to create confusion and instability - at least for an interim period - which could dampen the market," the economist said.

Ranil Wickremesinghe told a press conference on Wednesday that from October 12 - if the UNP won the elections - President Kumaratunga would have to work under an UNP-led parliament. "Parliament controls almost every aspect of life in the country and when the UNP is returned to power, parliament could even stop funding the president, " he said. "So there is no way she can ignore our orders."

But most analysts say the tough Kumaratunga is not going to give in easily and there would be a tussle for the reins of power while the rest of the country watches. "Kumaratunga is certainly not going to play second fiddle," the economist said, noting that any crisis like this would further dent an already depressed stock market. Analysts said the market was likely to move within the 450 to 500 level range in the next few weeks before the election and any sharp developments within or outside this band would depend on how close the two main political parties are in the next few weeks.

The ASI was pegged at 496.7 on Thursday. Others believe turnover will sink lower than the 10 million-rupee to 30 million-rupee average seen in the past few months with speculation being the key to any increases. "If the PA emerges a stronger party and a more formidable force then the market is unlikely to change," one analyst added.

The biggest difficulty in the market is that investors are guided by foreign interests and not reasonably-good economic fundamentals or strong corporate growth. All major companies and banks including the John Keells group, Aitken Spence, Hayleys or the National Development Bank have recorded favourable profits for the first half of the year though their second half performance is likely to be dented by rising inflation and higher fuel prices and cost of imports during the year.

Foreigners have been net sellers in the market, with an outflow of 3 billion rupees, since January this year. Foreigners have purchased only 1.2 million worth of stock compared to sales worth 4.1 million rupees.

But some analysts believe the market could take off whichever way the political winds are flowing, after the polls. "The stock valuations can't remain at these low levels for long.

There has to be a rally at some point," one analyst remarked, referring to a similar scenario in 1993 soon after President Ranasinghe Premadasa was assassinated. The market then dipped to low levels after Dingiri Banda Wijetunga took over the reins - at that time temporarily - as president but when he began to assert himself in that position, the market rallied to earlier levels.

Money Market Update First Capital Ltd.

First Capital - Money Market

The inter-bank call money market and the overnight repo market

During first four days of the week ending 31st August, the inter-bank call money rate held in the region of 14.5%. However, on the month ending Thursday, the call money rate plummeted as certain banks lent in the market for balance sheet purposes.

In spite of the Central Bank's continuous intervention in the treasury bill auctions, the liquidity position in the market remained short. During the week, the call money rate was between the much expanded boundaries of 15% and 11.50%. The weekly call money average plummeted 70 basis points to close at 14.34%. As we anticipate the liquidity short fall to remain in the near future, we do not expect the call money rate to sustain at lower levels.

Central Bank open market operations

As the call money rate dropped to 11.5% on Thursday, the Central Bank improved the repo window rate by 75 basis points to mop up the excess liquidity. The lower inter-bank call money rate would have been a threat to the spot exchange rate. The reverse repo rate remained unchanged at 15%. Given the persisted liquidity shortfall, during the first four days of week, the market continued to borrow from the Central Bank reverse repo window, averaging Rs. 4.07Bn a day. On the back of the excess liquidity that prevailed in month ending Thursday, Rs. 1.9Bn was recorded on the repo window.

The Treasury bill auction.

Rs. 3344Mn worth of treasury bills matured during the week and Rs. 2844Mn worth of bills were offered to the market. For the second consecutive week the auction was under-subscribed and the total bids received were only Rs. 2114Mn. Given the much lucrative market repo rates and the much higher bond yields, the market interest for the treasury bills were affected. Consequent to the poor participation of the investors, the Central Bank played the major role by purchasing approximately 46% of the bill auction. As the rising momentum of the treasury bill yields continued, the 364 days yield reached the highest since March 1997.

Treasury bond auction

During the week, two bond auctions were held in the categories of 2 and 3 years, for Rs. 1500Mn each. Though both categories were fully subscribed, the yields improved substantially. In the new yield curve there is a 129 basis points difference between the 1-year and the 2-year weighted averages. The secondary market activities remained on a lackluster note as most of the investors were on a wait and see approach.

Foreign exchange - dollar spot movement

The Central Bank dollar/rupee trading band remained unchanged, buying at Rs. 75.60 and selling at Rs. 79.47. During most part of the week the rupee held stable in the region of Rs.78.10. However, as the call money rate dropped on Thursday, the spot surged up to Rs. 78.26 to close the week. The spot ranged between Rs.78.00 and Rs. 78.26. Three months forward was quoted at Rs. 79.98 to Rs. 80.08, while six months was at Rs.81.50 to Rs. 81.65.

91Days 182 Days 364 Days

Last Week 12.68% 12.86%

13.68%

This Week 12.75% 12.87%

13.90%

Change 0.07% 0.01% 0.22%

Maturity 1-8-02 15-8-03

Coupon 10.75% 11.00%

Amount offered Rs.Mn 1500 1500

Amount

Accepted Rs.Mn 1500 1500

Weighted average 15.19% 15.53%

Change 0.32% 0.21%

SHIPPING & AVIATION

3% hike in airline fares

By Gunapala Ranasinghe

All categories of air fares are to be raised by three per cent with effect from September 15, said an IATA official.

The fare hike decision has been taken by the International Airline Transport Association (IATA), based in Geneva, who has advised the fare hike.

This marks the first raise in fares in three years for Sri Lanka.

Consequently all passenger air tickets will go up from Rupees 300 to Rupees 2,000 according to an airline spokesperson.

Passengers who will be travelling from now till September 30, who purchase their tickets before September 15 will, however be entitled to buy their tickets on the existing fares, said the spokesperson.

Mass bags NCE Silver

Mass Logistics & Shipping (Pvt) Ltd., has won the Silver award under the sector 'Service Providers to Exporters - Medium Category' conducted by the National Chamber of Exporters of Sri Lanka at their 1999 Annual Awards Ceremony held recently.

Mass has maintained steady growth over the years and has been successful in achieving Silver this year, improving on the Bronze they won for 1998.

Even though it is only two years since Mass entered the trade, the company has rendered excellent logistics to exporters, earning them industry-wide appreciation.

Mass is manned by top professionals in the field, and their untiring efforts are beginning to bear fruit, which bodes well for the industry in general.

CIT incorporated by Parliamentary Act

The Chartered Institute of Transport (CIT) in Sri Lanka has been incorporated by Parliamentary Act No. 8 of 2000.

The CIT is the only international body, which represents all sectors in the transport industry.

Founded in 1919 in London, and granted Royal charter in 1926, the institute was established to promote the knowledge of science and art of transport, and to provide a source of authoritative views for communication to governments, industry and the community.

Commenting, the chairman of the Sri Lanka Division of the Chartered Institute of Transport, Parakrama Dissanayake said that, "CIT is the only professional body within all forms of transport in Sri Lanka to receive the recognition from the supreme legislative body."

Within Sri Lanka, CIT organises regular annual programmes, which consist of an annual session, international conferences, regular monthly lecture programmes and a transport exhibition. CIT has also contributed towards the development of a maritime policy, aviation policy and transport policy for Sri Lanka through the respective ministries.

RCL provides high quality services

Regional Container Lines (RCL) began as a common feeder operator, operating its first feeder containership in 1979 between Bangkok and Singapore.

In 1988, RCL was listed on the Stock Exchange of Thailand, and has since achieved satisfactory performance and financial returns to shareholders.

To date, RCL owns and operates 32 containerships covering 17 countries and 78 destinations in Asia.

The yearly volume of containers carried by RCL in 1999 amounted to 1.4 million TEUs.

RCL will increasingly expand its feeder services and container liner business in Asia through the provision of high quality containership services with reliable fix-day sailings, fast transit, the deployment of modern and high specification containerships and customer service information technology.

The RCL fleet size ranges from 600 TEUs to 1,500 TEUs. Strict manning and maintenance standards for the entire RCL fleet are provided by experienced technical team in RCL ship management, a subsidiary of RCL. The ship management company and the entire RCL owned fleet have achieved ISM certification since 1998, well ahead of the mandatory 2002 ISM deadline.

HK A'port awards contract for maritime terminal

A China-based group has won the license to build and operate a cargo terminal at Hong Kong's airport. Chu Kong Air-Sea Union Transportation Co., a Hong Kong subsidiary of Chu Kong Shipping Enterprises (Holdings) Co., was granted a five-year franchise by the Airport Authority.

The terminal will be built at the north-eastern quay next to the airport passenger ferry pier that includes a waterfront of about 1,400 feet.

Plans call for a site with an annual capacity of 300,000 metric tonnes. Initially, it will receive scheduled services from at least 14 ports on the Pearl River, an airport spokesman said. Customs clearance will also be handled at the terminal.

Chu Kong will develop, operate, manage and maintain the terminal. It will also provide truck delivery services between the terminal and the airport's air cargo facilities and future logistics centres.

"It will strengthen Hong Kong International Airport's position as an air cargo hub," says Billy Lam, Chief Executive of the Airport Authority.

"It has always been the AA's objective to fully utilise the airport's strategic location, proximity to the Pearl River Delta and the airport's island setting to make access by sea convenient and cost-effective.

With the terminal, we will be able to offer truly intermodal transportation links by air, land and sea," he said.

"The future growth of the airport depends to a great extent on its ability to capture the Pearl River Delta as its catchment area."

Hong Kong Air Cargo Terminal Ltd., the dominant operator, reported volumes of 811,346 tonnes in the first half of this year, a gain of 17 per cent on the corresponding 1999 period.

The airport has annual capacity for three million tonnes, and Lam said the authority plans to increase that to none million tonnes. For outbound cargo from southern China, the sea link provides an alternative to road transport, which can be expensive and time consuming.

Water transport via the Pearl River will also be quicker and cheaper for many cargo operators.

"Taking delivery of 1,000 tonnes as an example, water transport could be 20 to 30 per cent cheaper than land transport," says Justin Cao, development manager at Chu Kong Shipping.

Chu Kong Shipping is controlled by Guangdong Province Navigation Holdings, which has the backing of the government of the province adjacent to Hong Kong. The company has about 400 vessels with an annual capacity of 4.5 million tonnes. Cao declined to say what terms the company offered. He said the company would invest $5.7 million to build the terminal, expected to be in operation early next year.

Ceylinco Universal GSA for three airlines

Ceylinco Universal Limited, a member of Ceylinco Consolidated is the GSA for three airlines namely Olympic Airways, Air Mauritius and All Nippon Airways.

A sister company of the Ceylinco Group, Ceylinco Global Services was recently appointed as GSA for Air Seychelles in Sri Lanka and the Maldives.

The company has plans to launch the airline shortly.

Ceylinco Universal, the GSA for these airlines is focussed on becoming one of the top three GSA's in the country, and is committed to serving their valued customers.

The company, which constantly innovates, has come up with a new idea to deliver tickets to the customer's door.

The company encourages the travel agent to fax in their voucher, on receipt of which the tickets are issued and delivered to the travel agent.

The arrangements is a success with the travel agents, saving them time and energy.

Olympic Airways

Olympic Airways, which has not been a market due to the non-availability of market fares, is now very evident and has many offers to prospective clients.

The airline's target market's are Australia, Greece and Europe.

A special package offered by the airline is the regular MDP market fare, which accommodates all passengers flying to Australia, in Bangkok for one night, enabling passengers visiting relatives in Australia to avail of shopping opportunities in the city.

Air Mauritius

The island nation of Mauritius is a world-class holiday destination, with Air Mauritius as the national carrier. Ceylinco Universal is the GSA in Sri Lanka for the airline, and offers a complete package for those who wish to travel to this paradise.

Both visa and travel arrangements, including hotel accommodation and tour packages are handled by the GSA.

Mauritius which is a volcanic island has lovely beaches as well as other places of interest. A point of local interest is the historic Ehelepolla, who after being banished by the British, had his own following on the island.

His tomb is an ideal attraction for Sri Lankans wishing to visit the island.

Another offer by Air Mauritius is for those wishing to visit Madagascar.

A magnet for gem merchants, Madagascar features prominently on local Sri Lankan gem merchants' travel itinaries.

Travelling Air Mauritius via Singapore, passengers receive a free night's stay in Singapore at the airline's expense.

ANA

ANA is a private Japanese airline and is rated Asia's largest flyer.

The airline strives to be the first choice among passengers, and their GSA Ceylinco Universal endeavours to achieve this goal.

ANA adds value to her product by providing special domestic rates in the form of a visit Japan fare, where one could purchase a minimum of two coupons or a maximum of five and a routing, depending on the requirement. These special fares even offer up to 70 per cent discount off the normal rates.

Another value addition is the facility offered to purchase a Japan Rail Pass, which is offered in the 7, 14 or 21 day passes.

The benefit in purchasing these passes in Sri Lanka is the currency rate which puts it at over five times more in Japan.