Lanka's stock market resilient to withstand impact of US crisis - Analyst

By Lalin FERNANDOPULLE

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The Sri Lankan stock market has been on a steep decline since the beginning of the year regardless of the United States financial market crisis, said a market analyst of DFCC Stockbrokers.

He said the decline has been intense during the past month. The overall downward trend is due to the high interest rate regime where investors find it more viable to invest on markets that have higher returns. An early end to the war will bring about a resurgence to the stock market.

The All Share Price Index (ASPI) dropped by 405 points and the Milanka Price Index (MPI) by 860 points since January.

The market capitalisation which was US$ 7.7 billion at the beginning of the year is today US$ 6.5 billion, a decline of US$ 1.2 billion.

The decline since early September is US$ .79 billion.

He said stocks such as Dialog and John Keells Holdings (JKH) which have a significant foreign ownership and whose market capitalisation is a major contributor to the entire market capitalisation has declined in price during the past two weeks.

The decline cannot be directly attributed to the US financial market crisis.

The verdict on the Lanka Marine Services Limited has had an impact on JKH share price and an anticipated decline in Dialog's future earnings due to stiffer competition expected with the advent of Airtel India by the end of the year has also affected its share prices.

The analyst said, however, if there is foreign selling by JKH and Dialog it could affect the share prices and the overall market.

Apart from these concerns Sri Lanka's stock market is resilient to withstand an impact from the US financial market crisis.

The US Senate approved the modified financial rescue plan in a 74-25 vote on Wednesday. The Senate vote came two days after the House of Representatives voted against the plan, 228-225.

A CNN report stated that Congressional leaders on Wednesday added 'sweetener' to a US$ 700 billion financial bailout to attract enough House members, particularly Republicans to pass the plan which failed in the House early in the week.

The bailout plan includes new provisions, such as an increase in the Federal Deposit Insurance Corp.cap from $100,000 to $250,000.

It makes $250 billion immediately available to purchase bank assets, leaving $100 billion at the discretion of President George Bush and $350 billion subject to Congressional review.

At the time of going to press financial market analysts were optimistic that the Bill will be passed in the House.

"The bailout plan is to salvage financial markets from crashing. Prudent fiscal management is vital to avoid such major crises", he said. The US financial market crisis is due to heavy leveraging on instruments of property markets by investment banks.