Colombo bourse among best performing markets in Asia for 6th year – CSE DHG

Market Performance
The Colombo Stock Exchange (CSE) enjoyed yet another great year in 2006. Both price indices, the All Share Price Index (ASPI) and the Milanka Price Index (MPI) reached their highest ever levels during the year. The ASPI reached its peak on 1st December by recording 2,789.8 points and the MPI reached its all time high on the same day, recording 3,795.2 points. The ASPI recorded a gain of 800.2 points or 41.6% during the year, while the MPI appreciated by 1,260.7 points or 51.4%.

The Telecommunication sector was the largest contributor to the growth of the ASPI in 2006, with a contribution of 16.7 percentage points and the Diversified sector was the second largest contributor, with a contribution of 6.1 percentage points. Dialog Telekom Ltd was the largest contributor to the growth in the ASPI in 2006, with a contribution of 12.3 percentage points, John Keells Holdings Ltd was the second largest with a contribution of 6.3 percentage points followed by Sri Lanka Telecom with a contribution of 3.3 percentage points.

The top 15 companies have contributed to 32 percentage points of the index growth of 41.6%.

The sustained growth of the market price indices has resulted in Colombo being among the best performing stock markets in Asia for the 6th consecutive year.
The CSE closed the year, registering an average daily turnover of Rs. 436.3 mn.
The market capitalisation also increased significantly in 2006. At the end of the year, the market capitalisation was at Rs. 834.8 bn, an increase of 42.9% from 2005.

Domestic investors continued to drive the market during the year, although their contribution to total purchases declined for the second consecutive year.
Domestic investors accounted for 64.7% of total purchases in 2006 compared with 75.8% in 2005.

Foreign investors continued to be nett buyers in the market for the fifth consecutive year, with net purchases of Rs. 5.3 bn, the second largest nett foreign inflow recorded at the CSE. Foreign investor contribution to total purchases increased from 24.2% in 2005 to 35.3% in 2006.

Fifteen listed companies raised Rs. 4.7 bn by way of rights issues, Rs.1 bn more than the amount raised in 2005. The secondary market activity in both Corporate and Government debt was very low.

Admission of Trading Members
The CSE admitted five new Trading Members in 2006, increasing the number of broker firms to 20. The Trading Members are expected to offer stock broking services in equity and debt, to both retail and institutional investors in Colombo and the outstations, introduce foreign and local investors to the market, provide fund management and corporate finance related services. The new Trading
Members are:

Capital Alliance Securities (Pvt.)Limited.

First Capital Equities (Pvt.) Limited.

SMB Securities (Pvt.) Limited.

Taprobane Securities (Pvt.) Limited.

Amana Securities Limited.

Four of the Trading Members commenced operations during the latter part of 2006 and Amana Securities Ltd commenced operations on 2nd January2007.

Listed Company Profitability
On the Corporate front, listed companies enjoyed a boost in their quarterly profits in 2006, as indicated in Figure 04. Quarterly profits for 2006 appreciated by 80.9%, over that of 2005. The quarterly corporate profits have shown a considerable growth since 2002, except during the first two quarters of 2005, due to the tsunami.

New listings
New listings were disappointing since only two companies were listed during the year. Vallibel Power Erathna Limited was listed by way of an IPO and Amana Takaful Limited by way of an Introduction.

Most Sri Lankan corporates heavily depend on the banking sector and their retained profits to fund development initiatives. There are significant growth opportunities on the new listings side, as there are a number of state-owned enterprises and large family-owned companies that have yet to tap the capital market for funding.
The CSE has embarked on a proactive approach to encourage listings by setting up of an Issuer Relations unit to aggressively promote new listings on the CSE amongst companies which are potential candidates for a listing.

Market Development
Presently the market is dominated and driven largely by local investors and the CSE is aware of the importance of maintaining a balance between the local and foreign investment.

The CSE conducted a road show for Fund Managers in Singapore, which showcased five leading listed companies.

The CSE was subsequently invited to another global fund managers’ forum also held in Singapore, which provided a further opportunity to promote our listed companies to fund managers globally.

Forging alliances with stock exchanges in the South Asian Region, facilitating the listing of new products such as index futures and overseas road shows are some of the planned initiatives.

On the local retail side of the business, the CSE will continue in its efforts to increase the number of investors trading in the CSE through our islandwide investor awareness programmes.

However, the CSE is very mindful of promoting the market with responsibility and ensures that the concept of “Risk and Return” is addressed adequately at all investor education workshops.

Internal Audit
In November 2006, the CSE commenced an internal audit process to review the systems and controls in the Regulatory Affairs, Information Technology, Business Development, Finance & Administration, Human Resources and Clearing & Settlement Divisions of the CSE.

The internal audit function has been outsourced to MSL Audits (Pvt) Ltd, a subsidiary of Ernst & Young. These audits will assist the CSE to measure and evaluate the effectiveness of its systems & controls and furnish the Board and management with an analysis, and recommendations concerning the activities reviewed.