Underpinned by the start of peace negotiations and the Prime Minister’s visit to New York andfocusing on investment promotion, the market gained steadily during the week amidst rising trading activity.

The All Share Index ended the week at 838.9 points (+5.3% WoW) with the Hotels and Travels Sector gaining the most (+13.7% WoW) on peace prospects.

The major gainers for the week were Asian Hotels (+31.1%), Grain Elevators (+18.0%), Ait. Spence Hotel Holdings (+11.4%), Aitken Spence (+8.1%), JKH (7.2%) and Ceylon Tobacco (+7.1%). Losses were recorded in eChannelling (-9.3%), Maskeliya Plantations (-5.9%), Watawala Plantations (-4.5%) and Trans Asia (-2.9%).

Average daily turnover for the week rose dramatically to LKR483.6mn (+154.7% WoW) with Asian Hotels, East West Properties, Maskeliya Plantations, Infrastructure Developers Limited (IDL), JKH and NDB Bank being amongst the heavily traded stocks.

Foreign participation was noticed mainly in JKH, Asian Hotels, (IDL), Commercial Bank, Caltex Lubricants, Colombo Dockyard and East West Properties with total foreign purchases amounting to LKR434.1 mn and sales reaching LKR 214.4 mn.

Market outlook

With the All Share Index reaching new five year highs, the market appears over stretched at the current juncture. However, with investor sentiment remaining positive, further gains look likely in the week ahead, before an inevitable cooling off period.

But longer term market performance should be supported by progress on direct negotiations between the government and the Liberation Tigers of Tamil Eelam, clear focus of the government on economic reform and fiscal austerity, global economic recovery and revival in foreign direct investment.

Despite the recent market gains, with corporate earnings projected to rise by 24% in FY (March) 2003, the market trades on only 9.9X forecast net profit. This is still at the lower historical trading range of 8.5X to 16X witnessed during previous UNP regimes.

We believe that fundamentally sound stocks such as John Keells Holdings, National Development Bank, Commercial Bank, Hayleys and second liners such as Caltex Lubricants, Colombo Dockyard, Lion Brewery, Distilleries, Tokyo Cement should outperform. (Asia Securities)