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Investors buy into EDL gen after heavy rains
Investors put more money into EDL gen shares than BCEL yesterday after the recent heavy rains, which will boost the generation capacity of the hydropower plants in Laos.
According to a report from Lao Securities Exchange, investors decided to buy 40,528 shares of EDL generation at a price of 5,100 kip per share while purchasing only 2,490 BCEL shares at a price of 7,900 kip per share, giving the impression that the investors feel more confident in the hydropower business than they do in the banking sector.
Investor moves to buy EDL gen shares took place amid reports that the Electricity Generation of Thailand would decide to import more electricity from Nam Theun 2 and Nam Ngum 2. Thailand is facing higher production costs for electricity due to a disruption of the gas supply from the Gulf of Thailand.
Laos on the other hand, now has more capacity to generate power as the heavy rainfall is causing dam levels to rise at the hydropower plants, allowing them to produce electricity.
Investors failed to trade any BCEL bank shares on Monday. The price of BCEL shares have remained low for several weeks despite a report that the French bank had agreed to purchase 10 percent of BCEL shares from the government at price of 11,000 kip per share.
The drop in value of BCEL bank shares took place amid rising inflation. According to the Lao National Statistics Bureau, the inflation rate has remained above the 9 percent mark for several months and reached 9.52 percent in June, which has put mounting pressure on the commercial banks to revise interest rates.
“People consider the deposit interest rate unattractive if it is lower than the inflation rate,” said a senior banker who asked not to be named. At present, the deposit interest rate is about 10 percent compared to June's inflation rate of 9.52 percent.
The Bank of the Lao PDR raised its interest rate in September and announced that it would no longer provide loans for the government to implement infrastructure development projects in an attempt to curb the country's inflation rate.
Economists said that increasing the interest rates of commercial banks could cause investors to stop borrowing from the banks as the move will drive investment project costs higher, making the price of their products uncompetitive. While investors stop borrowing money, the commercial banks will continue to have to pay deposit interest to customers, which may force them to adjust their profit forecasts for the year.
Dr Darrell Walker, Vientiane Times stock market commentator, said yesterday a bank rate adjustment may affect the banking sector but would have little impact on institutional investment in the stock market.
“The rise of interest rates is a commercial banking practice and should not impact on bank profitability because any additional cost is passed on to the consumer,” he said.
Rather than reflecting concerns about the interest rate, the stock's price at the moment is a result of price resistance because it currently sitting at its intrinsic value, he said. “The low turnover of BCEL bank stock is a technical indication that a rise in share price is just around the corner,” he said.
vientiane times
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