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Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 2739

Is It Time To Buy Sri Lankan Stocks?

By Vinayak Maheswaran
Colombo, 26 June, (Asiantribune.com):

Sri Lanka has been through two crises in the span of six months. To a lesser extent, the October political crisis decreased economic activity and then there were the incidents from April 21, 2019.

All of the events have been overwhelming, but has it reached a tipping point? There is an old saying that time will tell. But the adage things usually get better is apropos here. After all, it may be stormy now, but it never rains forever. This is not just for romantic comedies, but can be said for stock markets across the globe.

Activity on the Colombo Stock Exchange (CSE) stagnated during the periods of political uncertainty towards the end of 2018. This was due in part to accelerated foreign outflows which were anyway quite persistent given the emerging market selloffs at the time. On Monday, the fifth of November 2018, the All Share Price Index (ASPI) dropped by 0.49 percent while the S&P SL20 fell by 0.56 percent. On this particular day of trading, the net foreign outflow topped Rs. 3.15 billion and the turnover was Rs. 4.1 billion.

Anyway, the stock market made a return as the current regime remained in power and this was good for the bourse as they were expected to be more business-friendly. Still, the effects remained as the index fell to 5,591.67 in mid-March which was a six-year low. Foreign selling was the primary reason for this as investors were wary of the stability of the government led by Prime Minister Ranil Wickremesinghe. Additionally, Sri Lanka’s ability to pay off foreign loans was and is a big concern.

The Easter Sunday bomb attacks which caused the CSE to stop trading on the following day have been quite devastating for the economy. There are a number of equities that have exposure to the tourism sector. A month after the terrorist attacks there were just 40,000 tourists that visited the island. This is a far cry from the 200,000 tourists that usually visit the paradise isle every month. One thing to keep in mind is that tourism accounts for 5% of the country’s GDP. Therefore, the impact on the economy is envisaged to be limited. Foreign investors decided to sell their stakes in the immediate aftermath of the explosions. Looking at foreign holdings, it was however interesting to see that they stayed invested when looking at a whole month after the bombings. Nonetheless, the indices dropped by about 6 percent in trading in the days after the attacks.

Some experts have opined that the 3.5% GDP growth rate for the year 2019 has to be reviewed and that the country is likely to see its weakest growth in two decades. Certainly, domestic aggregate demand will be negatively impacted as there is a loss of income. Analysts polled by Reuters had a median forecast of 2.5% for GDP growth.

However, the silver lining is that exports will be unaffected for the most part. Again, Sri Lanka has shown its resiliency in the past and this should not change. This was reiterated during the ‘Invest Sri Lanka’ investment promotion forum in Singapore. ‘Invest Sri Lanka’ is organized by the CSE in association with the Securities and Exchange Commission of Sri Lanka (SEC). The forum made a triumphant return to Singapore after the mostly positive 2014 and 2018 editions. A key take away from the forum was the speech by CSE chairman Ray Abeywardena in which he conveyed the message that the equity markets in Sri Lanka will bounce back better than it was before. What is more, the market statistics reflect this positive sentiment.

In conclusion, it looks like this could be a good time to scoop of some shares. The company fundamentals are robust and there is a good growth expected. If you look regionally, the other stock markets don’t offer such an attractive option especially when it comes to the pricing. Investors will be happy to note that a diversified product range will be offered by the CSE as it moves forward.

- Asian Tribune -

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