Sri Lanka stocks gain; foreigners leave after rating downgrade

ECONOMYNEXT – Sri Lanka’s stock market gained on Thursday (13) to its highest since January 5, but foreign investors dumped shares a day after global rating agency S&P downgraded the island nation’s sovereign rating by a notch on the country’s high external debts, dealers said.

Foreign investors sold a net of 188 million rupees, extending the net foreign selling to 2 billion rupees so far this year. In 2021, the Sri Lanka stock market suffered a net foreign outflow of 50 billion rupees.

Despite expected better earrings in the December quarter, lingering currency depreciation concerns had weighed on the sentiment.

The main All Share Price Index (ASPI) closed 1.64 percent or 215.54 points up on Thursday to close at 13,338.49 points.

S&P SL20 of the more liquid index too gained 4.13 percent or 64.11 points to 4,554.94.

Analysts have expected the market to recover from two session fall early this week ahead of long holidays during the weekend.

They say investors have nowhere to invest their money.

Analysts also said people are expecting better earnings from all the companies in the December quarter. Corporate earnings are expected to be released next week onward.

The day’s turnover of 7 billion rupees more than last year’s daily average of around 4 billion rupees.

Analysts say many investors are now coming into stocks because of negative returns and see high turnovers these days after the market return jumped to 80 percent last year.

Sri Lanka’s fixed income yields are below 8.45 percent, well below the double digit inflation recorded in December due to excess money printing by the central bank. As a result, many investors are shifting their funds to risky assets, analysts said.

Analysts say foreign investors had been leaving due to speculation of sharp depreciation in the local rupee currency as the central bank has been holding it at around 200 level against the US dollar while local importers say they are compelled to buy dollars above 250 rupees in the grey market amid tough import curbs.

Sri Lanka is facing a risk of sovereign debt default after a series of credit downgrading by all three global rating agencies, but the government has said it will repay all the loans despite the reserves plummeting to its lowest in more than a decade in November last year. However, the central bank said the reserves have jumped to around 3.1 billion US dollars by end 2021 without disclosing the source of inflow.

The stock market has been the key investment tool for local investors amid excess money printing by the central bank in a lower interest rate regime. Many companies also listed themselves last year to use a tax concession for listing.

On Thursday, LOLC Holdings, Sri Lanka Telecom, and Softlogic Holdings pushed the main index

LOLC Holdings gained 5.66 percent to close at 1,376.25 rupees a share, Sri Lanka Telecom, the country’s top fixed-line phone operator, gained 21.72 percent to close at 66.70 rupees a share, while Softlogic Holdings closed up 19.56 percent to 71.40 rupees a share.

Expolanka, the market heavyweight, has export and freight businesses, closed up 1.58 percent at h385.00 rupees a share. (Colombo/Jan13/2022)

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