April, 2011

CAPITALMarkets
A monthly E-publication of federation news from the world press

BANGLADESH BHUTAN

INDIA MALDIVES
ANNOUNCES

SOUTH ASIAN
INVESTMENT
INVESTMENT
CONFERENCE
CONFERENCE
MAURITIUS NEPAL

SOUTH ASIAN
FEDERATION OF EXCHANGES

PAKISTAN SRI LANKA POSTPONED

Sheraton Imperial Hotel
Kuala Lumpur
Malaysia

U.A.E
For more information:
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Mr. Tahir Ul-Mulk Khalon Mr. Usman Ali Shah
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 MAJOR SAFE MARKETS
DHAKA STOCK EXCHANGE - DSI
march

5600

5400

5200

5000

4800

4600

4400
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BOMBAY STOCK EXCHANGE - SENSEX

march

19500

19300

19100

18900

18700

18500

18300

18100

17900

17700

17500
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NATIONAL STOCK EXCHANGE - S&P CNX NIFTY

march

5900

5800

5700

5600

5500

5400

5300
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NEPAL STOCK EXCHANGE - NEPSE

march

400

395

390

385

380

375

370

365

360

355
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STOCK EXCHANGE OF MAURITIUS - SEMTRI

march

5950

5900

5850

5800

5750

5700

5650
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MALDIVES STOCK EXCHANGE - MASIX

march

170

165

160

155

150

145

140
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COLOMBO STOCK EXCHANGE - ASI

march
7700

7600

7500

7400

7300

7200

7100

7000
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 MAJOR SAFE MARKETS

KARACHI STOCK EXCHANGE - KSE-30

march

11900

11800

11700

11600

11500

11400

11300

11200

11100

11000
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KARACHI STOCK EXCHANGE - KSE-100

march

12200

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11700

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 MEMBERS’ NEWS
Uncertain future concerns investors startribune.com
The topic occupying the minds of investors this week will be how much worse the stock markets in the Mena region can get. If Saudi Arabia's dramatic rally yesterday is
any sign, the answer may be: "not much". Having lost 15 per cent last week to hit a 22-month low as traders fled the markets in the wake of unrest sweeping the region, the
Tadawul All-Share Index surged 7.3 per cent yesterday to 5,709.91, with some stocks gaining 10 per cent. The exchange is under particular scrutiny as the largest and
most liquid of the region's stock markets. The kingdom is perceived to be vulnerable to social discontent on the one hand, but on the other hand stands to gain from higher
oil prices, which have been another product of the changes across the region. Dubai's main measure, the Dubai Financial Market General Index, slumped to a seven-
year low, ending the week 1.6 per cent down at 1,352.24 points. Qatar's measure ended the week 2.2 per cent down at 7,489.25 points, after struggling to get near the 26-
month highs it breached after winning the rights to host the 2022 Fifa World Cup. The Abu Dhabi Securities Market General Index was among the only ones to end in the
black, closing slightly higher at 2,529.82 points. In Oman, Muscat's measure pared some of the losses that pushed it to a two-year low and finished 0.7 per cent higher at
6,352.23 points. The ADIB Islamic Index, a gauge of Sharia-compliant companies, retreated 6.5 per cent led by declines in Arabtec Holding, Aldar Properties and Emaar
Properties. The dips were caused by worries that tensions would affect the economies of oil-exporting nations not hit by unrest. Bahrain , which has suffered some
unrest, has one of the smallest, least liquid markets in the region. Its stock market fell 2.3 per cent to 1,377.36 points. Investors will start buying stocks that have more
than halved in value, although a catalyst is absent.

The Tadawul is trading at 14 times earnings and, compared with a historic average price to earnings ratio of 20, is looking appealing. The market is dominated by retail
investors with only 20 per cent of the market composed of institutional clients. "Retail clients are the majority that have been selling but now we are seeing big investors
look at cheap stocks that are really attractive," said Tariq al Alaiwat, an analyst at NCB Capital in Jeddah. Even large government agencies, which have not been active in
the market over the past six months, bought at least 589 million riyals in securities last month, mainly over the last few days of the month, data from NCB Capital show.
Consumer-related stocks such as the food company Savola are been seen as good buys, said Mr al Alaiwat. Retail has been identified as one of the best value-for-
money sectors on the Saudi market, and is trading at about 12.6 times earnings. Some Egyptian and Tunisian companies have also emerged as potential beneficiaries of
investors exploiting cheap valuations when the markets reopen this week, but not those in the property or banking sectors, where companies may be exposed to legacy
effects of the former regimes. Ann Wyman, the head of Mena equity at Nomura, said investors should avoid banking stocks in particular. "The combination of the legacy
of poor loan quality related to the former regime and the potential for increased non-performing loans [means] markets [in Tunisia] have begun to deteriorate more
rapidly," Ms Wyman said. But there will be no buying in the meantime as protests that ousted presidents in Egypt and Tunisia forced the two markets to close after severe
sell-offs. Egypt's bourse was scheduled to reopen today, after 24 business days of closure, but that has been delayed until after consultations with Essam Sharaf, the
new prime minister. Mr Sharaf was appointed on Thursday after Ahmed Shafiq stepped down. Mostafa Abdel Aziz, the head of regional trading at Beltone Financial, said
investors should be wary. "You have to be selective in the names," Mr Abdel Aziz said. "You will not see severe correction [in the price of] say, telecoms stocks or
petrochemicals, consumer-related stocks or textiles. Egypt's bourse fell 16 per cent in the two days before being closed on January 27. Mr Abdel Aziz said the stock
exchange was "not the priority of the government at the moment". Tunisia's index was also suspended for a second time last week, after escalating civil upheaval forced
the resignation of Mohammed Ghannouchi, the prime minister. The suspension will remain in place until further notice, according to the Bourse de Tunis website. Trading
on Tunisia's benchmark Tunindex was first suspended on January 14 for two weeks after the ousting of Zine el Abidine Ben Ali, the country's president. Before Sunday's
suspension it lost 11 per cent since trading resumed.

The role of financial derivatives: Prospects of Bangladesh stock market Md. Toufique Hossain
Derivatives -- a well-known term used in the parlance of the stock market -- are instruments derived from the securities or physical markets. They include futures, options,
warrants and convertible bonds. Financial derivatives and hedge funds have played an increasingly important and often inter-related role in the context of the stock
market. In the financial markets, derivatives are used as an instrument by the investors to make profit. Even a small value-change in the underlying worth of the asset can
cause a large fluctuation in the derivative of the asset. By the way, if the prices are exactly going the way the investor expected, one may expect a profit. The purpose of a
financial derivative is to give a stock owner or purchaser some kind of leverage, implying control of a large stock by using minimal investment. There have been
numerous disasters in the cases of a number of financial institutions because of the use of financial derivatives. For example, in England, the Barings Bank failed
miserably as a result of the risk that the bank incurred after making a financial derivative. One of the company's representatives made trades that did not come into force
in the future. That was in 1995. This caused substantial losses to the bank and it went bankrupt at the end. There are, however, both sides of the coin -- the benefits and
risks of financial derivatives. Futures and options are also forms of financial derivatives. Risk managers can use them to hedge financial risk. Two major roles of a
financial derivative are about speculation and hedging. In case of risk management, derivatives facilitate production and investment activities by allowing companies
and investors to reduce and manage risk exposure. A derivative trading also benefits the economy by revealing information about the value of underlying assets of
contracts relating to derivatives. This can facilitate the market participants to make more informed decisions.

Hedge funds are active traders of derivatives. Hedge funds compensate the management in part with annual performance fees and are typically engaged in active
trading of the financial instruments. By law, they may accept capital, only from wealthy individuals and institutions. If financial derivatives can be strongly developed in our
stock market - Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE), the crash that has recently been recently witnessed there, could have, perhaps,
been avoided. The chief of the Securities and Exchange Commission (SEC) has already talked about derivatives -- a kind of financial product of the stock market. The
introduction of such products might be of help to prepare the local market operators well for getting themselves accustomed to such products that are already in use in the
developed markets since long. Financial derivatives can play a significant role in the capital market. For such derivatives, one does not need to worry much about
changes in the prices of current stocks. Invested wisely, the derivatives are bound to make profit. If the underlying asset changes in any specific direction, or stays around
the same value, one can speculate and make some profit, if the worth of the asset moves exactly the way one wants. Holding of a financial derivative involves the transfer
of risk from one party to some other party. Both the parties involved do normally have a reduced risk to handle. Derivatives can also be used to control large blocks of
stocks for a much smaller sum than it would be required by outright purchase or sale. Due to their great flexibility, derivatives allow the investors the full range of
investment strategy: speculation, hedging and arbitrage. Derivatives also offer the opportunity for sophisticated management of risk.

Play, win millions on BSE's virtual stock market game FE Report

Interested in the stock market but worried about losing money? Now, you can learn the basics of investing and indulge in risk-free trading. Just play a virtual game. BSE
Training Institute, in association with Dalal Street Investment Journal, recently launched Stock Market Challenge, an online game that allows players to buy and sell
stocks in a virtual stock market. The game can be played on three platforms — DSIJ.in, Facebook and the Bombay Stock Exchange website BSEIndia.com. Launched in
January 2011, 11,000 people have already played the game. “Several people want to learn about trading, but the games available are too advanced. Also, we wanted to
reach out to the younger audience and promote real investment,” says Bhavik Parmar of DSIJ.in, who helped develop the game in-house. Stock Market Challenge
targets three sets of audiences - serious traders, youngsters and people who have lost confidence in the stock market. To play, register on one of the three platforms
available. Once registered, players are given virtual currency worth Rs. 10 lakh and can begin trading. They can buy or sell any stock listed in the BSE, book profits and
create a portfolio. The game picks up live feeds from the BSE to replicate stock exchange trading scenario in real time, so the share prices reflect those at the BSE. Splits,
bonuses and corporate dividends in the real market too are automatically added into the portfolios.

At the end of the day, an electronic contract note is given to the players and details of their portfolio are sent across every week. And, if you lose all your money, simply hit
the reset button to start off again. Players can also interact on the chitchat application using messages of 140 characters. “We've had players start off with Rs. 10 lakh
and go on to make Rs. 100 crore,” says Parmar, who adds that derivatives and futures have purposely been left out to avoid complications.

CAPITAL MARKETS Page 10

 MEMBERS’ NEWS
NCEL is now Pakistan Mercantile Exchange Ltd correspondent
KARACHI: The National Commodity Exchange Limited (NCEL) has changed its name and now it will be called the Pakistan Mercantile Exchange Limited (PMEL), a
statement said on Friday. The announcement was made by Samir Ahmed, Managing Director after its approval by the Securities and Exchange Commission of Pakistan
(SECP) recently.“This name change has been decided with a view to communicate more accurately our mandate as a nationwide commodities and futures exchange.
The new name also reflects more accurately the wide variety of our current and planned business lines and products,” said Ahmed.NCEL, as the country's first and only
commodities and futures exchange, offers a platform where growers, producers, processors, traders, exporters, importers and investors can trade with ease. By
providing a transparent and regulated market, it enables proper price discovery and enables participants to invest and hedge themselves against the price volatility of
agriculture and non-agriculture commodities.

NCEL is the Pakistan's first and only demutualised commodity futures exchange with a 100 percent institutional shareholding. The current shareholders included the
National Bank of Pakistan, Pak-Kuwait Investment Company, Zarai Taraqiati Bank and the three national stock exchanges.

Banking crisis: Speculation of fraud cover-up at NBP, BOP The Express Tribune
The cancellation of a hearing at the Senate Finance Committee on accounting irregularities at the Bank of Punjab (BOP) and the
National Bank of Pakistan (NBP) has left some committee members suspecting an attempted cover-up of illicit activity. The Senate
Committee on Finance and Revenue had been due to convene to discuss the draft of an investigation into the accounts of the Bank
of Punjab which had been prepared by the State Bank of Pakistan as well as review the loan portfolio of the National Bank of
Pakistan, where it is suspected that the bank has been hiding troubled assets on its balance sheet. “The decision to cancel the
meeting was jointly taken by State Bank Governor Shahid Hafiz Kardar and the chairman of the Senate's standing committee on
finance, Senator Ahmed Ali,” said a spokesman for the central bank, when contacted by The Express Tribune. Sources inside the
Senate secretariat say that the meeting is likely to be cancelled completely. If committee members insist on addressing the issue,
then the chairman is likely to call for a closed-door session of the panel. The Senate finance committee has previously never met
behind closed doors. “The cancellation of such an important meeting indicates that the higher authorities have ganged up to save
the skin of those who are responsible for financial irregularities in the Bank of Punjab and the NBP,” said a member of the committee
who wished not to be named. When requested to supply the draft report, the central bank claimed that it contained information that was “too sensitive” to be revealed to
the media, according to Senate sources.

The State Bank, however, did offer to allow senators to visit SBP headquarters in Karachi and view the report personally. While both the Bank of Punjab and the National
Bank of Pakistan are majority-owned by the provincial government of Punjab and the federal government respectively, they are both also publicly listed entities that trade
on the Karachi Stock Exchange. Both banks are required under the Companies Ordinance of 1984 to disclose their accounts to the public every quarter. The Bank of
Punjab, however, has failed to do since September 2008. According to sources familiar with the matter, the gap between assets and liabilities at the Bank of Punjab may
be between Rs50 billion and Rs80 billion. Some senators are adamant that they want to find out how such a monumental loss could occur at the bank. “We have to get to
the bottom of this, as it is a matter of grave public concern,” said Senator Haroon Akhtar Khan of PML-Q, a member of the finance committee. He said there were also
some serious problems at the National Bank, with some reports suggesting that it was heading towards a crisis similar to the one at the Bank of Punjab. Haroon
suggested that NBP may be extending loans while accepting substandard collateral , compromising its own financial integrity. People close to the committee chairman,
Senator Ahmed Ali, said that the chairman did not cancel the meeting but rather postponed it. They said the decision was taken after Senator Ishaq Dar, another
committee member, went on a foreign tour. Nonetheless, the Senate website states the meeting has been “cancelled”. NBP stock closed at Rs78.91 in trading on the
Karachi Stock Exchange on Thursday, up 5 per cent for the day. The Bank of Punjab's stock closed at Rs7.37 per share, down 1.8 per cent for the day.

Citi Pakistan becomes Custodian Clearing Member of NCCPL onlinenews.com

Islamabad: Citi Pakistan has become a custodian clearing member and the settlement bank for the National Clearing Company of Pakistan (NCCPL). From April 2011,
Citi will carry out clearing and settlement of its foreign investor client trades through NCCPL. This is yet another demonstration of Citi's efforts to remain committed
towards shaping market developments and supporting regulatory initiatives in Pakistan. Arif Usmani, Citi Country Officer said, 'Our effort towards driving local market
change, in partnership with regulators and other industry participants, is a reiteration of our commitment to Pakistan's capital markets. Through our extensive global
reach, marked by our presence in over 160 cities, this latest membership of NCCPL will further facilitate our clients in pursuing global investment opportunities with
greater efficiency. As we mark 50 years in the country, we look forward to continuing our contributions to the banking services industry in Pakistan.'Richard Scavetta,
Securities & Fund Services Head, Africa & Pakistan, said, 'As Pakistan's capital market evolves in 2011, the implementation of custodian clearing membership is one of
the key regulatory initiatives we have remained focused on throughout 2010-11. This was largely accomplished by our representation on working groups and advisory
committees, making sure our clients' interests and concerns are conveyed directly to the regulators and market infrastructures.

Aijaz Haq, Securities and Fund Services Head, Citi Pakistan, said, 'Being the only global bank operating in Pakistan for 50 years, Citi's membership is a hallmark for
Pakistan's capital market infrastructure, as it provides access to over 100 foreign institutional investors across the globe. As a direct market participant, Citi's
membership as a custodian clearing member will allow it to serve as a conduit between stock exchanges, NCCPL, Central depository and foreign institutional investor
clients. It eliminates the need to settle trades with counterparties, thereby reducing counterparty risk while enhancing settlement efficiency.

Abu Dhabi firm eyes $4bn investments tradearabia.com

Abu Dhabi government-owned General Holding Corporation (GHC) plans to invest up to 15 billion dirhams ($4 billion) in the metals and petrochemicals sector over five
years as part of a diversification push, a top official said on Wednesday.

GHC chief financial officer Mukhtar Safi also said the firm is planning to tap debt markets through a bond issue in 2012 or 2013 to finance its petrochemical investments.
He gave no further details.

'We have invested 10 billion dirhams since 2004 and we are looking at investing another 10 to 15 billion dirhams in the coming five years,' Safi told a conference.
Oil-rich Abu Dhabi, capital of the United Arab Emirates and the third largest exporter of oil in the world, is spending billions of dollars investing in industry, tourism and
infrastructure to diversify its economy away from oil.

As it sets up more industries, GHC will form partnerships with strategic investors, both local and foreign. 'We have secured some very high-profile foreign partners for
joint ventures in metal and petrochemicals. We will execute the projects in the next five to six months,' he said, declining to elaborate.

GHC, an industrial conglomerate, owns nine companies in various sectors such as basic metals, construction material and food products. It has privatised two firms --
Agthia Group and Arkan Building Materials Co -- floating 49 percent of each on the Abu Dhabi stock exchange.

CAPITAL MARKETS Page 11

 MEMBERS’ NEWS
India: come doomsday, come foreign exchange intervention by James Lamont
If a stable currency is the measure of a central bank's success, the Reserve Bank of India has done a stand out job with its
restrained foreign exchange management.

Asia's third largest economy – where officials are proud of setting the country apart from other emerging markets – is in no hurry to
go the Brazil route and grasp at tougher capital controls to boost the competitiveness of its economy. Subir Gokarn, the deputy
governor of the Reserve Bank of India, is never one for overstatement. Yet, he underlined the “Indian difference” on Wednesday
when he said that only a “doomsday scenario” would persuade the central bank to return to the days of heavy currency intervention
to weaken the rupee. India remains a highly regulated economy, but that option has been firmly shelved unless needed “in
extremis” to fend against disruptive, rapid exchange rate movements. Speaking at the Institute of International Finance's spring
meeting in New Delhi, Mr Gokarn explained that the central bank had stuck to its exchange rate policy of “a float with some
smoothing” in spite of the global economic turbulence of recent years. The floating rupee is strikingly robust, and its recent strength
has not got in the way of India's improving export performance.

Amid the turbulence 2011 has brought to emerging markets, the rupee has held its ground 'when local equity markets haven't. It has weathered a pronounced sell-off of
equities on the Bombay Stock Exchange, swirling corruption scandals and the imminent pain of higher oil prices in an economy notoriously dependent on oil imports. It
has similarly ridden out a slew of economic policy announcements, including the national budget, undisturbed. This week it coasted at a near two month high against the
US dollar at a little below Rs45 to the dollar. The rupee, alongside other currencies in the region, is likely to strengthen further in the medium term. US dollar weakness,
aggressive monetary tightening and an economy growing at 9 per cent will likely ensure that is so. Mr Gokarn is plainly of a mind for such a rise to pass unimpeded.

Brokerage firms won't go for forced sale of shares thefinancialexpress-bd.com

Brokerage firms agreed not to make any "forced sale" in the capital market. Forced sale is considered as the main reason for the sharp decline in the market in the last few
days. The decision came following a meeting of the top brokerage firms of Dhaka and Chittagong stock exchange. Investment Corporation of Bangladesh (ICB)
organised the emergency meeting in the wake of current volatility in the stock market. "As market has seen enough correction there is no point in selling the shares. All
brokerage houses in the meeting agreed not to make any forced sale in the market which will ensure the effective use of the special fund of the state-owned financial
institution, said managing director of ICB Fayekuzzaman. n Tuesday seven state-owned financial institutions declared to form a large scale 'special fund' to give support
in the declining market. Fayekuzzaman said, forced sale ultimately brings huge selling pressure which may turn the special fund ineffective. We need to create buy order
for bringing about stability in the market. ICB MD informed that seven state-owned institutions will sit toady (Thursday) to determine the 'special fund' size and finalize the
guideline to use it. Whether private sector brokerage firms will contribute to the special fund, ICB MD said, we have urged them to contribute to the fund. They will
consider it. Fayekuzzaman said, "we need to have a strong secondary market in the capital market. For this co-ordinitated effort is needed by the market regulator
Securities and Exchange Commission (SEC), DSE and CSE.

Mauritius GBOT Bourse Sees $200 Million Daily Value by Year-end Kamlesh Bhuckory
Global Board of Trade Ltd., a Mauritius-based commodities and currencies derivatives exchange, expects daily transaction value to surge to $200 million by the end of
2011, Managing Director Joseph Bosco said. The daily target for the bourse, which started operating on Oct. 18, compares with value of $22 million recorded in for the
whole of February to date, Bosco said in an interview at the Ebene-based exchange yesterday. GBOT, as it's known, had contracts worth $12 million traded in its first
month of operations. “We are not in a hurry,” Bosco said. “We need to settle down. We are trying to create an edifice of a market.” GBOT, owned by Financial
Technologies (India) Ltd., started trading gold and silver contracts, together with the dollar- rupee as well as rand , pound and yen contracts against the dollar, according
to an e-mailed statement from the company. It currently has 24 members, with 11 coming from Africa, according to Bosco. The company will offer contracts on the
Kenyan shilling versus the dollar followed by the Nigerian naira, he said, without giving any specific date. “We have sought clearance with all the regulators from these
countries. It's on”, Bosco said. GBOT's current focus in creating awareness of the exchange in Africa, targeting commodity-rich economies such as Uganda, Angola and
Zambia, Bosco said.

Temasek Buys More Shares in Pakistan's NIB Bank, Increasing Focus on Asia
Temasek Holdings Pte, the biggest shareholder of NIB Bank Ltd., bought more shares in the Pakistani lender as Singapore's state-owned investment company
increases holdings in Asia. Temasek bought 6.35 billion rupees ($74 million) of NIB Bank's shares, representing its portion of the lender's rights offer, the bank said in a
statement to the Karachi Stock Exchange. The Singapore company will also subscribe to any portion of NIB Bank's 8.58 billion rupees rights offering that isn't taken up,
the Karachi-based lender said. The Singapore firm's participation in rights offerings by companies in its portfolio bolstered holdings. Temasek's assets climbed 43
percent to S$186 billion ($146 billion) in the year to March 31, with Asian investments outside of Singapore and Japan making up 46 percent of the portfolio, according to
the company's annual report published in July. Temasek owned 74 percent of NIB Bank as of March 31, 2010, according to the annual report. It bought more shares in the
bank through Fullerton Financial Holdings Pte, which invests in financial institutions in emerging markets. NIB Bank offered about 6.26 billion of rights shares at 1.37
rupees each, according to the statement. While the stock jumped 9.2 percent to 2.60 rupees yesterday, it has declined 38 percent since April 15. The lender's paid-up
capital will increase to 103 billion rupees after the rights offer, it said.

The bank reported a loss of 10.1 billion rupees in 2010, after it took a charge of about 9.9 billion rupees in provisions, according to the statement. NIB Bank said it has
begun to experience a “strong” recovery and expects to “reverse a sizeable portion of these provisions” as it seeks to recover non-performing loans through negotiations
and legal action against defaulting customers. It remains a “liquid, well-capitalized and sound” bank, it said.
nismail3@bloomberg.net

Dow Jones SAFE index at DSE, CSE soon Sheikh Shahariar Zaman
Dhaka, March 1 (bdnews24.com) – Dow Jones SAFE Bangladesh index is likely to be launched at Dhaka and Chittagong stock exchanges within three to six months.
Couple of Bangladeshi fund managers had expressed their interest to float the index, secretary general of South Asia Federation of Exchanges (SAFE) Aftab Ahmed
said in an interview with bdnews24.com on Tuesday. "Dow Jones will appoint a fund manager on business and commercial considerations and the same will listed with
the Dhaka and Chittagong exchanges," the SAFE secretary general said. SAFE, in collaboration with Dow Jones in 2009, launched Dow Jones SAFE 100 index, where
13 Bangladeshi companies have been incorporated. The fund manager would raise funds from the market and buy shares of the companies it would select from a list of
13, he added. "The fund manager may select all the 13 companies or any other number for investment purposes."
BANGLADESH MARKET
About the domestic market, Ahmed said it was overheated and had, therefore, been witness to bubbles. "During the last three months, it lost about 50 per cent market
cap and it's also too steep," he said. Ahmed felt that financial institutions should not be overexposed to the market, and supported the government move to create a fund
to support the stock market. "The ICB and other state-owned commercial banks should float a fund and buy good fundamental shares and it'll pay off when the market
rises," Ahmed observed. He stressed the importance of reforming the market and continuous engagement with investors. "Even without demutualisation, the role of
stock brokers can be minimised," he said, adding, "The regulatory body should play the role in this regard.”
REGIONAL COOPERATION
SAFE is trying to facilitate cross-border transactions but it is facing challenges. “We need to open up financial sector to allow cross-border transactions, but political
commitment is needed to make this thing happen," he added.Cross-border trade would give the investors an opportunity to invest in the market where they would get the
maximum return, Ahmed added.

CAPITAL MARKETS Page 12

 MEMBERS’ NEWS
IMF directs Maldives to implement more positive financial action David Stephens
MALE, March 1 (HNS) - The International Monetary Fund's (IMF) Executive Board noted that the Maldives has been propelled from the
economic strife it experienced after the 2004 tsunami and recent recession by its robust tourism industry, yet needed to do more to achieve
“macroeconomic stability, sustainable growth and poverty reduction.” The organization made these observations in its Public Information
Notice (PIN) of the opinions formed by the board's Directors after their consultation with Maldivian authorities. “After contracting by 2¼
percent in 2009, the economy rebounded strongly in 2010, on the back of a sharp recovery in tourism inflows. Real GDP growth is
estimated at 4¾ percent in 2010,” the PIN revealed. Nevertheless the PIN did criticize that “the economy continues to experience a steady
downward pressure on reserves and persistent dollar shortages. Directors called for continued discussions between the authorities and
the staff on this issue while being mindful of the risks involved and the impact on the poor.” The notice mentioned that the Directors had
called for meaningful reforms in the areas of banking, public employment restructuring and public financial management. However, the Executive Board did praise the
strong monetary measures that had brought about a reduction in the budget deficit as well as the newly enacted Tourism Goods and Service Tax and the Business Profit
Tax.

India budget plans to tackle "black money" menace trustlaw

NEW DELHI (TrustLaw) - India is planning a series of measures to deal with billions of dollars of "black money" stashed in banks in
overseas tax havens, the finance minister said in his budget speech, the Hindustan Times reported on Tuesday. According to a report by
US-based think-tank Global Financial Integrity (GFI) in January, approximately $104 billion of illegal funds -- roughly 10 times the
government's annual budget for education -- were transferred out of India from 2000 to 2008. Black money is income from illegal
activities – crime and fraud -- which is not reported to the government for tax purposes. It can also just be money which is stashed abroad
to avoid tax. Illegal funds abroad have become the latest headache for Prime Minister Manmohan Singh in a second term plagued with
graft scams that have handed a powerful weapon to the opposition.

"The generation and circulation of black money is an area of serious concern," Finance Minister Pranab Mukherjee was quoted as saying on Monday. "To deal with this
problem effectively, the government has put into operation a five-fold strategy which consists of joining the global crusade against black money."
India has joined various international bodies including the G-20's Financial Action Task Force (FATF) on money laundering, and the Global Forum on Transparency and
Exchange of Information for Tax purposes, Mukherjee announced. The government has also appointed a group to look into an amnesty scheme for tax offenders, the
paper added. Mukherjee said he planned to create an appropriate legislative framework, set up institutions for dealing with illicit funds and provide better training for
government officers on the issue. In January, India's Supreme Court asked the government to probe the issue of black money and called for the disclosure of names of
people holding illegally obtained funds overseas.At the time Mukherjee had said such disclosure would be legally impossible, until agreements are drawn up with
countries where the money is parked.

SEC order deals blow to brokerage house business FE Report

The fast expanding brokerage house involved in the capital market business, faces fresh blow with the latest SEC directive which has prohibited further opening of new
brokerage branch. SEC took decision to stop further opening of new branch unless members of both Stock Exchange in Dhaka and Chittagong use uniform trading
software. At present Dhaka and Chittagong brokerage firms use separate trading softwares. The officials of the brokerage house claimed that the latest SEC directive will
caused substantial loss to business as they have already made initial investment to set up branches. According to them, the trading software, currently used in the
brokerage house, are fully complaint with SEC surveillance system. According to a competent source of Dhaka Stock Exchange (DSE), currently at least 100
applications remain pending with DSE seeking opening of new branch offices in different parts of the country. Approximately, investment of TK 1 billion is involved with
the process. With the new SEC directive those investment now faces uncertainty. Managing Director of Globe Securities Azizur Rahman, who is an applicant for a new
branch, informed FE that in most cases brokerage firms have to strike five year agreement with landlords to set up a branch office. A handsome amount of money has to
be paid in advance in the form of 'advance rent' to the landlord."For staff appointment and decoration of brokerage house I have already invested Tk60-70 lakh to set up a
branch office at Banani. With the latest SEC directive we will face financial loss as we have completed all the preparation to set up branch," said Aziz who oparates eight
branches across the country."It is unfortunate after completion of all the procedures SEC comes up with the decision to stop setting up new branch," he added.

DSE sources say that in case of bank branch the authority starts the process of establishment of a new branch after getting the approval for the bank branch. Whereas, in
case of brokerage firm the procedure is different. The authority has to finish the decoration and appointment procedure in order to get permission for a new branch of
brokerage house. On condition of anonymity, a high official of a leading merchant bank said, "we have already appointed workforce and rented premises to set up a
branch of merchant bank and brokerage house in Khulna. As it is not possible for merchant bank clients to trade without brokerage house the operation of merchant
banking itself is impossible. But we have to pay the salary and rent of the premises. "We don't know on which ground SEC took the decision. But if the decision is taken on
IT issues then we can say our software now in use are fully complainant with the SEC regulation, said the merchant banker adding that SEC and DSE should bolster the
surveillance software in order to monitor the newly established brokerage house.

Art of Investment' stock market seminar a huge success The Lankian

Art of Investment' Sri Lankan stock market seminar was sucessfully held on 13th Sunday 2011 at the Mt-Lavinia hotel amidst a distinguished gathering. The seminar was
organised by the Lankian magazine and sponsored by Bartleet Mallory Stock Brokers Ltd. Also Co-sponsored by Mt-Lavinia hotel and Sri Lanka Fund. 'Art of Investment'
covered areas relating to the Colombo Stock Exchange (CSE) ie. The stock market in general, listing of companies, types of instruments, how to purchase shares and
Indices. Further sessions included presentations by Barteet Mallory Stock Brokers covering investment procedure through a stock brokering company, types of equity,
benefits of investing in Equity, the risk it carries, divercifiation of investment, sector growth and sector dynamics.

Lankians made a presentation on the positioning of the Lankian magazine, target market and channelling worldwide business to Sri Lanka. Closing the sessions Sri
Lanka Fund covered operations of the fund, tax status of the fund and share certificates. The particiapants had a Q&A after the close of each session. The speakers at the
seminar were Ms. Nadeeka Perera - Assistant Manager CSE (Business Development), Mr. Angelo Ranasinghe, Director Bartleets Mallory Stock Brokers Ltd, Mr.
Yadhavan Jayaram, Manager Institutional sales, Ms. Sahani De Silva of Bartleets. Mr. Isuru Wijerathne, Head of Marketing Lankians Ltd and Mr. Jeevatha Jayatilleke -
Business Analyst of Sri Lanka Fund. Representatives of Dialog Axiata Plc supported the event and gave away SIM cards together with ICICI Bank who conducted a
business card lottery. "We are very happy after having completed another successful program to promote the CSE". All the guests were very happy at with no negative
feedback replies. This was possible thanks to our media partners Daily Mirror, Sunday Times, and The Island news papers says Mrs. Himadrini Abayanayake - Editor
'The Lankian' magazine.

CAPITAL MARKETS Page 13

 VIEWS FROM WORLD PRESS
Pep up your portfolio
with global stocks
thehindubusinessline.com
Mr. M. Damodaran, Chief Representative and Advisor for
ING in India and former Chairman of SEBI, Ms. Rashmi
Hansi Mehrotra, Prinicipal Business Leader for Investment
Consulting, Mercer at a "ING Global Investment Marathon"
held in Mumbai. (file photo)

Do you want to add some of Warren Buffett's favourite stocks to

your portfolio? It may be a smart thing to do. In the last five
months when the Sensex has dropped 9 per cent, the Dow
Jones Industrial Average has gained 12 per cent and European
stock indices such as the Euro Stoxx 50 and CAC 40 (of
France) have also given a solid 8-10 per cent return. Thanks to
signs of A global recovery, developed markets are doing better
now.

So, what are the options available to take advantage of this

global opportunity? For savvy investors who are not keen on
the mutual fund route to global investing, broking houses are
providing an online platform. India Infoline, Kotak Securities and ICICI Securities
are the ones offering this service currently. Read on to know how to get started.
WHAT DOES REGULATION SAY?
The Reserve Bank of India permits Indian citizens to remit a sum equivalent to $
2,00,000 (at current forex rate this comes to approximately Rs 90 lakh) overseas
in a financial year (April- March). This $ 2,00,000 is inclusive of the amount
allowed to be remitted as gifts and donation and is in addition to the amount
permitted to be taken on business or private travel, studies and medical
treatment.
account. Most brokers provide both a browser-based application and a
downloadable software for the online platform. And, as you log in to this platform,
your account gets activated. It will be very similar to the online trade screen you
are accustomed to, with options to view trade history and open positions - all in
one place. For successful trades, contract notes are sent via e-mail the same
day.
However, you need to know a few things here. To start with, margin trades are not
allowed - buy orders will be executed only when there is sufficient cash in the
account (remember that SWIFT transfers will take 3-4 days).

Trading in foreign exchange in the overseas market and purchasing of FCCBs
issued by Indian companies in a foreign market is not allowed. Remittances to
Bhutan, Nepal, Mauritius and Pakistan are prohibited. RBI permits investments
in stocks, bonds, options and Exchange Traded Funds (ETFs) in overseas stock
markets. To start with if stocks leave you bemused, you can actually consider
some of those index ETFs in NYSE- ishares NYSE Composite Index fund or
ishares S&P 500, etc. The brokers who currently offer a platform for overseas
investing act only as intermediaries; they redirect clients to a foreign broker who
has the license to provide a trading platform for global stocks. Kotak Securities
has tied-up with SAXO Capital Markets, an arm of the Denmark based SAXO
Bank.India Infoline has joined hands with Interactive Brokers LLC, a securities
firm that has trading businesses across 90 destinations worldwide.
WHAT IS THE PROCESS?
The process starts with the KYC formalities and filling up an account opening
form. A copy of your PAN card and a proof of address will be required. Post
completion of documentation, the broker sends your information to his foreign
broker partner. For example, if the broker is Kotak Securities, it will send your
details to SAXO and SAXO will get back with details of the bank account to which
you need to remit money in order to open an account.
Money transfers usually happen through SWIFT, also called wire transfer. This
requires you to make a remittance request to your banker by providing details of
the beneficiary banker and filling the A2 form. And yes, before you go to the
banker for transferring funds, you need to decide on the base currency of your
account, the currency in which your account will be denominated.
For investment in securities that are listed in a country whose currency is
different, the foreign broker will himself convert the funds in your account. If you
have a USD account and you want to buy a stock that is listed in FTSE, the broker
will convert USD to British Pound at the then prevailing exchange rates (of
course, for an extra charge). As you move your funds to the designated account,
the foreign broker will send details of the 'Login id' and password for your
Shorting is also not allowed - you can't sell a stock without holding it.
Also, with this option, you don't take a demat account in your name.
The shares are actually held in the name of the broker (the concept of 'Street
holding' where shares are in the broker's custody; segregated though on names
of beneficiaries).
WHAT ARE THE RISKS?
Risks in overseas investments arise mainly from currency rate fluctuations.
While rupee's appreciation will trim your returns, its value depreciation can
actually enhance it. Take this example:
The stock price of Google Inc. has gone up from US $ 555.7 in November last
year to US $ 600.8 now- an eight per cent appreciation.
During the same period, rupee too has gone up from 45.89 to 44.96 against the
US dollar - a two per cent increase. For someone in India who has invested in
Google stocks in November, the return at current price is 6 per cent. Conversely,
if rupee had depreciated in this period, he would have gained!
Savvy investors who buy stocks overseas, however, take appropriate cover
through positions in the currency futures market, says Mr Vishal Gulechha, Head
- Equity Product Group, ICICI Securities. Leaving currency issues aside, another
risk here would be the lack of proper information assimilation. Though key
market events are captured by news wires, there is a chance that investors may
miss out on company specific developments and news.
On being asked what investors can do about this, Mr B. Gopkumar, Head-
Broking, Kotak Securities says that they offer regular e-mail updates to clients on
the markets and also special recommendations from SAXO. Their online
platform also offers a two-way dealer chat where one can request for information
on a specific stock to SAXO. At India Infoline too, customers are given some
regular stock updates. This service however comes as a value-add at some
broking houses and is priced separately.

CAPITAL MARKETS Page 14

 VIEWS FROM WORLD PRESS
Investors focused on
GOLD
commodities last year
NCEL Research Team
In 2010 a rising trend in commodity prices was witnessed locally and globally.
Almost all major commodities ranging from metals to agriculture rose
substantially during the year. Commodities remained the focus of investors
worldwide due to rising price trend through the year and bullish outlook going
forward.
There are a number of factors which are responsible for the current commodity
boom. In general, a continuous rise in population is a force behind growing
demand for agricultural commodities like wheat, sugar, rice, cotton, vegetable
oils etc. Other specific reasons include natural disasters such as drought in
Russia and floods in Pakistan that hit hard and reduced harvesting areas.
Additionally, steps taken by different Governments like ban on export or
increasing tariffs on imports are the forces that create an upward pull in the
commodity prices globally.
Similarly, a rise in the prices of gold, silver and other metals can be attributed to
a rise in demand due to record growth in the BRIC [Brazil, Russia, India, and
China] economies. Another important actor that played important role in the
recent upturn in commodities is the European economic crisis and bearish
trend of US dollar in 2010. Thus, commodities such as gold have attracted a lot
of safe haven demand, meaning that investors do not trust the assets of these
countries in times of economic turbulence. Metals traded higher for much of
2010, especially copper and gold reaching record highs while silver
appreciated nearly 81 percent. Gold continued to shine last year marking its
10th straight positive return. Gold ended the year up 28 percent at $ 1408.8 a
toz.
In the energy sector, global oil demand was on track to hit all time high in 2010,
growing 2.9 percent to 87.45 million barrels a day, according to the
International Energy Agency. The agency forecasts further expansion in 2011,
although at a slower pace, to 88.77 million barrels a day. Prices stayed in a
narrow band between $68 and $92 a barrel. Oil ended the year up 15 percent at
$ 91.3 a barrel.
The UN Index, which tracks the wholesale cost of several agricultural
commodities including wheat, corn, rice, oilseeds, dairy products, sugar and
meat, rose by 32 percent in the second half of 2010, up from 167 in July to 215
in December, 2010. Similarly the Dow Jones-UBS Commodity index was
higher by 16.8 percent in 2010 after an appreciation of 19 percent in 2009.
As an asset class, commodities are now equal in importance to other traditional
markets like stocks, bonds and currencies. The current shift in global
economics has placed commodities at the center stage in terms of world
growth. This growth is also visible locally now with the National Commodity
Exchange Limited coming into action by listing new products within the last two
years, adding new members and holding investor awareness programs. Both
individual investors and institutional investors played a role in the rising trend of
activity in commodities. Considering the continued bullish outlook of
commodities the investment trend is expected to continue in the current year.
NCEL commodity index rose by 40 percent during the year 2010 which is
CAPITAL MARKETS
based on five commodities Gold, Silver, Crude Oil, Rice and Palm Olein. The
following table shows the opening and closing pricing and the percentage rise
for these commodities during the year 2010.
Gold opened at $ 1097.5/toz a little below to $ 1100/toz in the year 2010 and
closed at $ 1408.8/toz after witnessing a record of $ 1421.1 per troy ounce. A
n o t e w o r t h y 2 8 p e r c e n t r e t u r n i s t h e y i e l d o v e r t h e y e a r.
CRUDE OIL
Robust demand from emerging countries was tempered by record high
stockpiles in developed nations. Larger economic forces were the main drivers
for prices. Prices stayed in a band between $68 and $92 a barrel. Oil ended the
year up 15 percent at $ 91.3 a barrel.
SILVER
The silver market is relatively small in size $ 19 billion, compared with $ 170
billion for gold. But of all the precious metals, silverís surge came as a big
surprise, which gained 81 percent to $ 30.67 a troy ounce. Silver traded to a 30-
year high approaching $ 30/toz in the year 2010.
IRRI-6 RICE
A mixed trend has been witnessed here in domestic markets for rice, IRRI-6
ended the year up 18 percent at PKR 3375/100 kg. Local prices rose primarily
due to the crop damage by floods. As Rice IRRI-6 is mostly exported the
international price trend also caused the increase in the local prices.
PALM OLEIN\PALM OIL
Malaysian crude palm oil hit a new 33-month high as robust demand chases,
tightening supplies and investors continue to place bets on commodities after a
strong performance last year. Malaysian crude palm oil rose by 42.2 percent in
2010. As a result the Palm Olein, derived from crude palm oil also rose by 44
percent in the local market and ended up at PKR 5225/37.324 kg.
COTTON
Cotton prices in NY have doubled since the beginning of 2010, soaring to a
record high of $1.59 per pound, before dropping back to $1.48 per pound, as
tight supplies and insatiable demand from China sent prices surging. Over the
year, cotton prices have risen 54.22 percent over their close in 2008. In
domestic markets cotton prices closed near Rs9,100/37.32 kg on the year end
after getting historic peak of Rs10,500 /37.32 kg.
Commodities as an asset class is now competing with other traditional markets
like stocks, bonds and currencies. The current shift in global economics has
placed commodities at the centre-stage in terms of world growth. As such, it
has become imperative for participants in all sectors to keep themselves aware
of happenings in the commodities world as it now increasingly affects all other
areas of economic activity. There will always be periods of unanticipated
volatility. Commodity futures offer insurance against these events.
In Pakistan, National Commodity Exchange Limited (NCEL) is the only SECP
regulated electronic futures trading platform which offers commodity
investment options. NCEL is offering an avenue where growers, producers,
processors, traders, exporters, importers and investors can hedge themselves
against the soaring prices of agriculture and non-agriculture commodities.
Currently, there are five commodities, Gold, Silver, Crude Oil, Rice and Palm
Olein as well as KIBOR Interest Rate Futures available for trading. In order to
cater the needs of different market participants, NCEL provides a variety of
contracts in terms of lot size and time periods.
NCEL has achieved remarkable growth in 2010 with total traded volumes of
approximately Rs185 billion. The total volume in 2009 was Rs28 billion, which
translates into an increase of 660 percent in traded volumes over previous
year.
NCEL's increasing growth is coming about as a result of newer products, low
transaction costs, tight spreads, deep liquidity, growing membership and
efficient systems that make it very easy for brokers and their clients to transact
and manage their trades.
Sugar, Cotton, Wheat, Maize, Steel and international currency pairs are
expected to be made available for trading in the current year. The addition of
new commodities will provide further depth to the market and as well as
creating new opportunities for trading and hedging strategies.
Page 14
 VIEWS FROM WORLD PRESS
Shocking: Flying Bullets Sri Lanka: Stock investors end
Wreak Havoc On Valuation up in a fiasco through Carsons
businessinsider.com
owned company Guardian
Are local armed insurgencies affecting your company's stock price? 'Dont
bother communicating intellectual capital to investors in visual or numerical
formats.
Capital rights deal
Instead, focus on your narrative and hope for a ceasefire. An analysis of Sri
Lankan firms reveals investors ignore all three forms of intellectual capital
disclosure during a period of civil war but do respond to voluntary narrative
disclosure when there's a temporary ceasefire.
'Intellectual capital disclosure informs about the future earnings capabilities of
resources not disclosed in financial statements,' notes study author Indra
Abeysekera, associate professor in accounting at the University of
Wollongong in Australia. 'In times of political instability, investors remain aware
of those resources but ignore them when it comes to calculating a company's
market value.'
Analyzing the stock price and annual reports of 90 companies listed on the
Colombo Stock Exchange, Abeysekera's data show that during the temporary
truce period (2001-2005) of Sri Lanka's civil war, only narrative disclosure had
any effect on market value. 'Investors usually respond to a mix of disclosure
formats,' he says. 'In this case, investors were optimistic – but only up to a
point. A narrative was the only format they trusted.'
Pointing to recent events in Arab nations, Abeysekera concludes: 'Managers
must understand that, in particularly unstable situations, they should
emphasize narrative information about forward-looking intellectual capital.
People tend to believe good stories but are more skeptical when it comes to
numerical models or 'glamorous' images.'
PARENTING PROBLEMS
Communicating corporate parent brand heritage does nothing for a spin-off's
stock valuation, according to a recent study. Researchers examining US data
during 1992–2004 found spin-offs failed to outperform the market one year
after divestiture; moreover, those relying on the parent's name, slogan, tagline
or other brand reference did about as well as those that did not.
'I expected investors might behave like consumers who typically transfer the
value, respect and other associations they have about a familiar brand to its
product extension,' says study co-author Subodh Bhat, professor of marketing
at San Francisco State University. 'Instead, it seems investors evaluate stocks
based on different criteria. Using a parent's brand equity to transition to a new
identity saves on marketing and branding expenditures but it won't boost stock
valuation.’
WORLD O' RESEARCH
· Swedish managers increasingly focus on non-financial information
in their annual reports, according to a survey of IROs at the country's largest
companies. The report also reveals a trend shift from R&D and relational data
toward CSR, employee-related information and more non-financial key
performance indicators.
· Researchers at the University of Illinois say disaggregating
management forecasts can reduce investors' fixation on earnings. The study's
authors suggest disaggregation into earnings and its components can provide
an alternative to stopping earnings guidance.
· The number of shareholder proposals a firm receives is positively
related to subsequent earnings management, according to a US study.
CAPITAL MARKETS
J.A. Fernando
Some investors of Colombo Stock Exchange - one of world's best performing
stock markets, had become millionaire's within a few minutes and after the
lapse of some weeks, a few others had lost millions or yet to face millions of
losses due to a recent price hike in a dud company share transaction deal, that
resulted in a All Share Price index fall out since the 1 March 2011 .According to
sources from Colombo Stock Exchange recently name-changed Guardian
Capital Partners (formerly Watapota Investments or WAPO) owners, Carson
Cumberbatch PLC (CARS) had sold 99.4% of the Rights to its other subsidiary
Ceylon Guardian Investment Trust (GUAR) for Rs. 223.4 million.
“This share already made some millionaires during this year. According to
investors, in case if some bought at least 100 shares of this company in
December 2010 at Rs.800, you would have been able to sell the same 100
shares at Rs.10,000 per share during the first two months of 2011 earning
almost over 1100% return” said one investor, Samantha Kulathilake.
According Manusha Kumarasinghe, another investor from Colombo said that
the sudden drastic fall of these rights and ordinary voting shares of the
Guardian Capital Partners (WAPO) has had a major impact on Colombo's
share index fallout during last few days, while panic selling and forced selling
by brokers to settle credit had further triggered the indices to fall in world's best
performing stock market in Colombo
The company had a mere 671,008 listed ordinary shares at the Colombo Stock
Exchange, while back in September 2010, there were a series of offers to
purchase the shareholding of former Watapota Investments PLC ranged in
price from Rs.40.60 per share to Rs.95 per share. That time company majority
shareholder, Carson Cumberbatch in an announcement noticed that it has
decided not to sell its shareholding of Watapota Investments. Later company
was retiled as Guardian Capital Partners PLC as the investment climate in Sri
Lanka has been positive, while investment Managers of the entity Guardian
Fund Management Limited forecasted that given a sufficient capital base that
the company could engage in lucrative investment related businesses in the
medium and long term.
However, at the time to date, the net asset value of the company as at 31st
March 2010 amounted to Rs.152.80 per share, out of which Rs.132 was
declared as dividend following shareholder approval at the last Annual General
Meeting held in 2010. This was later resulted in a net asset value of Rs.20.80
approximately remaining behind in the books of the company. Although the
investment managers of the company said the that there still appeared to be a
discrepancy between the price at which the share trades in the Colombo stock
market and the net asset value of the Company, the company share value
exorbitantly shot up above Rs.10,000 with an announcement which said that
company has decided to invest Rs.249.6 million in Expolanka Holdings
Limited, while there was no sufficient funds in the company to invest such an
amount in another thing. Meanwhile, company then announced that a rights
issue of 75 shares for every 02 shares held at a price of Rs. 20 per share, in
view of raising Rs. 503.2 million from public shareholders for expanding the
capital base of the company to undertake new investment projects mainly in
the area of private equity such as investing in Expolanka Holdings Limited.
Both the rights issue and the investment in Expolanka Holdings Limited (the
latter being a major transaction in terms of the Companies Act), were approved
by the shareholders of the Company on 18th February, 2011 according to
sources.
On the other hand, Guardian Capital Partners PLC has reported only
Rs.306,000 profit (46 cents per share) for the 9 months ending 31st December
2010 representing mainly the interest income earned on surplus funds
Page 14
 VIEWS FROM WORLD PRESS
available within the Company amounting to Rs. 20.3 million. Although the
ETF: Don't be passive about it
original entitlement was 21,823,125 shares based on Carson's shareholding of
581,950 shares of Guardian Capital Partners (WAPO) (86.73% of company),
Carson's had sold 21.692 million shares at a price of Rs. 10.30 per right to its
subsidiary Ceylon Guardian Investment Trust (GUAR); however according
Colombo Stock Exchange sources seeing the transaction on market the
retailers had then believed to trade the dud company's shares at an exorbitant
level of Rs.200o and later the rights had then fallen in to Rs.500 levels on
Tuesday the 1 March 2011 whilst the Guardian Capital Rights had closed at
Rs.163 levels on Thursday the 3 march 2011 bringing massive losses to
retailers at Colombo.
In another development Sri Lanka's most highly valued stock owning
Company at Colombo Bourse, Carsons Cumberbatch PLC (CARS) and its
associate Bukit Darah PLC (BUKI) had expressed its plans to buy minority
stakes in its Malaysian oil palm units as part of a restructuring to prepare for
bigger investments and expansion outside the region, according to a
statement in Colombo Stock Exchange.This comes in the wake of Carsons's
announcing its result for the nine months ended in 31 December 2010, where
the oil palm plantations of Carson's group had been the major contributor to
company's revenue since 2009 amounting to all most 50% of group's revenue
and over 60% of company's profits for the first nine months of 2009 and 2010.
In 2009 alone oil palms had brought revenue amounting to Rs.8.6 billion out of
19.6 billion of Carsons, while oil palm net profit has been reported at Rs.3.2
billion out of Rs.4.7 billion profits of the group. In 2010 oil palms had brought in
revenue of Rs.15.3 billion out of Rs.29.9 billion of Carsons while oil palm net
profit had added Rs.4.3 billion to Rs.6.4 billion net profit of the group during the
first nine months.
The Carsons group has expressed desire to buy minority stakes in its all time
four highly valued Malaysian plantation stocks at Colombo Stock Exchange
including, Shalimar (Malay) (SHAL), Good Hope (GOOD), Indo-Malay (INDO)
and Selinsing (SELI), and delist them from the Colombo Stock Exchange, a
statement outlined.
The statement further said that the four firms are to be brought under
Goodhope Asia Holdings, the Singapore-based holding company set up to
own and manage the group's south east Asian oil palm investments.
However in return, shareholders had been promised shares in Carson
Cumberbatch and Bukit Darah. But the statement said that “ownership of
group company shares will enable shareholders to reduce the risk and volatility
of plantation returns,” while the oil palm business had been the most lucrative
revenue generating sector of the Carson's group which has low performed in
its other areas of investments according to financials.
Reports say that Goodhope Asia Holdings owns and manages over 80,000
hectares of oil palm plantation land bank in Indonesia and Malaysia "through
which it is able to generate economies of scale, operational efficiencies and
cost competitiveness while it has plans to further increase its plantations
operations both within and outside Indonesia and Malaysia.
Back in the last quarter of 2010, Carsons took a decision to dispose its entire
stake held in Equity Hotels Ltd. (Giritale Hotels) to its own subsidiary, with a
view of consolidating its hotel business. Carsons had then decided to sell
685,237 shares of Equity Hotels Ltd. amounting to a 99.95% stake of total
shares in issue, to its subsidiary Pegasus Hotels Ceylon at Rs.160 per share.
The consolidation move of Carsons came after a year since Carsons started
consolidating its many plantation assets of palm oil and agro subsidiaries in
Indonesia and Malaysia including Good Hope PLC, Indo Malay PLC, Bukit
Darah PLC, Selinsing PLC and Shalimar PLC to another subsidiary entity,
Good Hope Asia Holdings Ltd, a fully owned subsidiary of the Carson
Cumberbatch PLC that is incorporated in Singapore. As soon as the
consolidating took place in Carsons plantation assets, Good Hope Asia
Holdings Ltd (GAHL) then negotiated with Standard Chartered Bank
Singapore (SCB) to refinance one of their existing term loan facility outstanding
of US $ 81 million (Rs.8.9 billion) obtained by PT Agro Indomas (PTAI) and PT
Agro Bukit (PTAB) with a revolving credit facility of US $ 10 million (Rs. 1.1
billion) and a further term loan facility of US $ 109 million (Rs.12 billion) for
further expansion of the current plantation projects on an inter availability
option for all plantation projects undertaken by the GAHL group.
CAPITAL MARKETS
Debashis Basu and Megha Vora
“In theory, there's no difference between theory and practice. In practice, there
is.” — Anonymous
Stock-picking is not an easy task, even for the most experienced and seasoned
professionals. That is why we have so many mutual funds underperforming
their respective benchmarks. One can avoid the traps and pitfalls of active
stock-picking or fund-picking and yet generate decent returns over the long
term through passive investing. One way to invest passively is through
exchange-traded funds (ETFs). There has been an explosion of ETF offerings
in the country. Investors now have access to gold ETFs, sector ETFs and
global ETFs. Is it a good idea to invest through ETFs? As with any financial
product, there is often a huge gulf between theory and practice. What the
products do to your wealth when you actually buy and sell may turn out to be
different from what they are supposed to deliver.
ETFs offer several advantages. Like index funds, ETFs are passively
managed. Like index funds, these represent a basket of stocks. The primary
advantage of passive investing is that it closely matches the performance of
the underlying index. Such investing requires little decision-making by a
manager handling the fund. The manager tries to mirror the chosen index,
tracking it as efficiently as possible. This results in lower operating costs which
are passed on to the investor in the form of lower fees. When mutual funds
charge you 2.25% per annum, index funds can cost you 1.5%. Some ETFs
charge you lower than that.
ETFs can be more tax-efficient. When you sell units of an index mutual fund,
you sell them back to the mutual fund company. When a mutual fund is faced
with redemptions, it must sell underlying securities to raise the cash to pay its
unit-holders. Any tax on capital gains triggered by these transactions is passed
on to the unit-holders who have remained invested in the fund. On the other
hand, ETFs don't have to sell the underlying securities to meet redemptions.
An ETF holder sells his units to some other ETF buyer through the exchange.
An added advantage is transparency. Investors are aware of the stocks that the
ETF is tracking and, therefore, need not worry about a change in the portfolio of
stocks that the fund trades.
But there is a huge difference between an index fund and an ETF and that is
crucial to your decision whether you should buy it or not. Unlike index funds,
which can be bought and sold from fund companies, ETFs are like shares and
can be bought and sold on a stock exchange (mainly the National Stock
Exchange of India, NSE) through a stock broker. So ETFs can be traded at any
time while the stock market is functioning. It is like investing in shares where
you can theoretically buy and sell on a daily basis. That leads us to the flip side
of ETFs. One of the biggest negatives is precisely that you have to buy them
through an exchange—and, therefore, you are at the mercy of the market's
liquidity. Low trading volumes and settlement concerns are major factors
leading to low liquidity. If a particular market is not as efficient as it should be, it
may also take time to match an ETF seller with a buyer. The bid-ask spread will
be wide. ETFs are structured in such a way that you could end up buying it at a
premium to the portfolio's value and selling it at a discount.
Until an ETF becomes widely popular, this is common—particularly in thinly-
traded markets. And the more volatile the market, the wider is the bid-ask
spread. Also remember, even the spread that does not look so wide in a normal
market can widen dramatically in a volatile, especially a sharply falling, market.
Let's look at some examples of thinly-traded ETFs.
The Hang Seng Benchmark Exchange Traded Scheme (Hang Seng BeES) is
now traded on the NSE, brought to you by Benchmark Mutual Fund. If you try to
buy it, you will find yourself to be a loner. There is hardly anybody buying and
selling and so there is a huge gap between the bid-ask spreads. The average
daily traded quantity over 11 trading days in mid-January was just 140 units.
The impact cost will be high as indicated by the bid-ask spread of Rs58.8 (on an
average). Similarly, for Reliance Mutual Fund-Banking ETF (RELBANK), the
average traded quantity over the same period was 86 units. UTI Mutual Fund's
(UTI SUNDER) average traded quantity in the same period was just 68 units.
Gold ETFs are very popular among fund companies. Every fund company is
launching one. Beware of buying gold through ETFs. Many are thinly-traded.
Page 14
 VIEWS FROM WORLD PRESS
The average traded quantity of Religare Mutual Fund's Religare Gold ETF over
the same period was 130 units and the average bid-ask spread was Rs23.21
on the underlying value of 1gm of gold which was Rs1,992.50 at the time. For
ICICI Prudential Mutual Fund's ICICI Prudential Gold ETF (IPGETF), the
average traded quantity over the same period was 234 units (average bid-ask
spread was Rs19); for Axis Gold ETF (average traded quantity was 183 units)
the average bid-ask spread was Rs17.32. Among the more liquid ETFs is
Kotak Mutual Fund-Gold ETF.
There is another problem with ETFs—huge tracking error. Remember, ETFs
are based on a single or a basket of underlying products or stocks. It may well
be that the ETF is quoted much higher than the underlying assets. We have
noticed gold ETFs being offered at prices higher than the MCX gold futures, for
instance. If you buy gold ETFs, you may be paying a higher price.
CAPITAL MARKETS
Lack of liquidity is a serious matter for an exchange-traded product, apart from
the fact that your cost of purchase goes up thereby eroding your returns
substantially. The bigger problem is that it takes only a bit of panic for an illiquid
market to turn completely illiquid. That is the inherent disadvantage of anything
traded on the exchange—they are subjected to inexplicable panic attacks from
time to time. If you are a passive investor in an ETF, a sudden drying up when
panic hits, may be a nasty surprise. There are many illiquid ETFs and these are
certainly avoidable.
To repeat, high tracking error, wide bid-ask prices and low traded volumes are
the ways you can detect poor liquidity of ETFs.
Page 14
The 'cap' confusion
Business Standard

Different agencies define large, medium or small cap, according to their own methodology. Understand them better.

We humans find comfort in classification and segmentation. That is why many of us prefer the well-demarcated aisles in supermarkets, rather than popping
into the local grocer's cluttered store. We extend the same desire to investing and consider it especially important when there are over 4,000 listed stocks and
hundreds of mutual fund (MF) schemes.

A common method of classification is the market capitalisation (MC)-based method, wherein stocks/funds are divided into large-cap, mid-cap and small-cap.
MC is the product of the market price and the number of equity shares outstanding. It may be computed either on a total or a free-float basis. Many investors
have a clear preference regarding the category they would like to invest. While some stick to large-caps, others gravitate towards mid-cap and small-cap
stocks. However, their definition varies widely. For instance, the Bombay Stock Exchange (BSE) considers stocks falling within the first 80 per cent of the free-
float market capitalisation as large-caps and those within 80-95 per cent as mid-caps while computing their indices. The National Stock Exchange (NSE)
considers stocks falling within 75 per cent and 95 per cent of the free-float market capitalisation as part of the eligible universe, while computing the NSE
MidCap Index.

Even mutual funds differ markedly. For instance, Birla Mid-Cap Fund uses an absolute filter of stocks with a market-cap between Rs 150 crore and Rs 1,500
crore. DSP Micro Cap's universe constitutes of stocks that are not part of the top 300 companies by market capitalisation. What constitutes small-cap for some
may be micro-cap for another.

Here's some solution to the segmentation conundrum:

STRIKE A BALANCE: Rather than obsessing over the the classifications, investors could opt for clear options within each category. For instance, Hindustan
Unilever and Jyothy Laboratories are large and mid-cap stocks, respectively, by most definitions. Owning both will give investors an exposure to two good
companies across the market-cap spectrum. If you prefer mutual funds, choose 'go-anywhere' funds, which operate without any market-cap bias. However,
even in these, the fund's philosophy will lead to a tilt in some direction. Fidelity Equity Fund, for example, is primarily large-cap oriented, while Reliance
Regular Savings is mid-cap oriented, though both profess to be market-cap agnostic. Choose the one whose style you are comfortable with.

CHOOSE INDEX FUNDS/ETFS: These mirror specified large and mid-cap indices and offer a low cost option to gaining exposure to a variety of stocks at one
go. In fact, undertaking monthly SIPs in one Nifty/Sensex-related exchange-traded fund (ETF) (example Benchmark NiftyBeES or Franklin Index Fund –
Sensex) and one mid-cap ETF (say Benchmark Junior BeES or MOST Midcap ETF) could be good enough. Any change in the underlying index's composition
automatically leads to a rebalancing of your holding. There is also no fund manager-related risk.

CHOOSE APPROPRIATE FUNDS: Ensure the large or mid-cap fund you are investing in is true to its mandate. For instance, Franklin Bluechip strictly
ensures over 80 per cent of its corpus is invested in large-cap stocks and, hence, is a good fund for those seeking a large-cap fund. Funds which frequently
modify their mandate end up confusing and disappointing investors.

BE COGNISANT OF BIASES: Often, the preference for one category over the other may be due to 'recency bias'. If stocks or indices belonging to a certain
category outperform for some time, investors gravitate towards that class. For instance, mid-cap indices outperformed large-cap indices for a large part of
2010. This led to heightened interest for mid-cap stocks. Similarly, during the market correction of 2008, large and well-known companies fell less than the
rest, thereby creating an illusion of safety, leading to a penchant for large-caps.

Continuous Listing Requirements

(Source: CBSL)
Colombo Stock Exchange (CSE) is currently examining the feasibility of making its continuous listing requirements (CLR) permanent. At present under its
main board listing requirements, there needs to be a 25% minimum free float; and in the case of listing in the Diri Savi secondary board, the requirement is a
minimum 10% free float. However, what more often than not happens, after an initial public offering, where CLR are conformed to, subsequently however the
free float is diluted due to strategic interest in the company, and the requirement of a 25% minimum free float in the case of main board listing and 10% in the
case of Diri Savi, is, therefore, more often than not, observed in the breach. Contentious issues such as which shareholder/shareholders should shed
his/their's “excess” equity stake/stakes in order to conform to CSE's CLR, are among the matters that the CSE is grappling with, before mandating CLR. A
plethora of new listings, some mandatory and some voluntary, are now before the CSE. Among the mandated listings are the need for registered finance
companies to list by end June, banks by end December and insurance companies by next year.
-
12 YEARS OLD
Grants McCann Erickson's Public Relations Department celebrated its 12th anniversary.

CREDIT CARDS SHRINK

The number of active credit cards in circulation as at end of last year decreased by 42,769 (5.2%) over that of November, and continued with this decline vis-à-
vis the end December 2009 figure, a shortfall of 62,035 (7.4%) over that figure of 840,509. However, the outstanding credit card balance in the review period
increased by Rs. 853 million (2.8%) to Rs. 31,616 million month on month in December, and marginally increased by Rs. 241 million (0.8%) when compared
South
with the end December 2009 figure of Rs. 31,375 Asian Federation of Exchanges (SAFE)
million.
SAFE Secretariat
RICE IMPORTS UP 132%
Colombo tea auction prices last November declined by96-W, Khyber
4.5% year Plaza,
on year (YoY) to US$2nd
3.38 Floor,
a kilo, whilst tea production for the year increased by 13.1% YoY
Fazal-ul-Haq
to 329.4 million kilos.However rice import prices Road,
in the review period Islamabad-44000,
increased by 132.3% YoY to US$ Pakistan.
849.10 per metric ton (pmt) C&F. Similarly white sugar
prices increased by 22.6% YoY to US$ 709.3
Tel:pmt+92 C&F(51)
and crude
282oil6763
by 7.2%| YoY to US$
Email: 84.80 per barrel C&F.But wheat prices in the review period declined
info@safe-asia.com
by 11.8% YoY to US$ 225.50 pmt C&F. (Source: Central Bank of Sri Lanka)
Fax: +92 (51) 280 4215 | URL: www.safe-asia.com