Sri Lanka stocks hit 3-year high; speculative trading raises concerns

COLOMBO Fri Aug 22, 2014 7:51am EDT

COLOMBO Aug 22 (Reuters) - Sri Lanka stocks edged up for the fifth straight session on Friday to hit a three-year high, led by large cap Ceylon Tobacco Co Plc, while block deals in market heavyweight John Keells Holdings Plc boosted the turnover.

Analysts said investors' sentiment was boosted by the low interest rates, but increasing speculative trading in fundamentally weak shares could dent the healthy growth the index has seen this year.

The main stock index ended up 0.05 percent, or 3.27 points, at 7,008.02, its highest close since Aug. 18, 2011.

The index has gained 18.56 percent so far this year.

"Now the speculative run has started," Dimantha Mathew, manager research at First Capital Equities (Pvt) Ltd.

"Heavy retail activity on retail-favourite speculative counters are moving up now after the fundamental and mid-cap shares moved up over the last few months."

Analysts said speculative share trading could sharply increase the market risk. The index plummeted more than 20 percent after it hit a record peak in February 2011 mainly due to speculative trading.

Ceylon Tobacco Co, which led the gains in the index, rose 1.26 percent to 1,203.30 rupees, while Bukit Darah Plc rose 2.97 percent to 700.20 rupees.

Shares of investment firm and broker Taprobane Holdings Plc jumped 15.56 percent to 5.20 rupees in heavy volume, which stockbrokers cited as a speculative move. It jumped 66.7 percent on Thursday.

Market heavyweight John Keells Holdings, which fell 1.49 percent to 245 rupees, accounted for 38.7 percent of the days turnover. Foreign investors sold 2.5 million John Keells shares.

Friday's turnover was 2.7 billion rupees ($20.7 million), well above this year's daily average of 1.2 billion rupees.

The bourse saw a net foreign outflow of 487.6 million rupees on Friday, but foreign investors were net buyers for 7.08 billion rupees worth of shares so far this year. (1 US dollar = 130.1700 Sri Lankan rupee) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anand Basu)