Markets to develop on political and economic decisions | Daily News


Markets to develop on political and economic decisions

The Bourse ended the week on a positive note as the ASPI increased by 143.53 points (or +2.67%) to close at 5,515.81 points, while the S&P SL20 Index also increased by 97.88 points (or +3.92%) to close at 2,594.44 points.

Turnover & Market Capitalization

JKH was the highest contributor to the week’s turnover value, contributing LKR 0.48Bn or 17.35% of total turnover value.HNB followed suit, accounting for 11.11% of turnover (value of LKR 0.31Bn) while Sampath Bank contributed LKR 0.29Bn to account for 10.37% of the week’s turnover. Total turnover value amounted to LKR 2.77Bn (cf. last week’s value of LKR 2.59Bn), while daily average turnover value amounted to LKR 0.55Bn (+6.72% W-o-W) compared to last week’s average of LKR 0.52Bn. Market capitalization meanwhile, increased by 2.82% W-o-W (or LKR 71.13Bn) to LKR 2,594.51Bn cf. LKR 2,523.38 Bn last week.

Liquidity (in Value Terms)

The Banks, Finance & Insurance sector was the highest contributor to the week’s total turnover value, accounting for 40.69% (or LKR 1.13Bn) of market turnover. Sector turnover was driven primarily by HNB, Sampath Bank, Ceylinco Insurance[X] & Amana Bank which accounted for 75.15% of the sector’s total turnover. The Diversified sector meanwhile accounted for 18.99% (or LKR 0.53Bn) of the total turnover value, with turnover driven primarily by JKH which accounted for 91.37% of the sector turnover. The Beverage, Food & Tobacco sector was also amongst the top sectorial contributors, contributing 12.93% (or LKR 0.36Bn) to the total turnover, with turnover driven primarily by Lion Brewery accounting for 71.11% of the total turnover.

Liquidity (in Volume Terms)

The Banks, Finance & Insurance sector dominated the market in terms of share volume, accounting for 37.73% (or 47.91Mn shares) of total volume, with a value contribution of LKR 1.13Bn. The Telecom sector followed suit, adding 18.70% to total turnover volume as 23.74Mn shares were exchanged. The sector’s volume accounted for LKR 0.21Bn of total market turnover value. The Manufacturing sector meanwhile, contributed 15.38Mn shares (or 12.12%), amounting to LKR 0.24Bn.

Top Gainers & Losers

SMB Leasing[NV] was the week’s highest price gainer; increasing 50.0% W-o-W from LKR0.20 to LKR0.30 while Dunamis Capital(+42.3% W-o-W), Nation Lanka(+40.0% W-o-W)and Tess Agro[NV](+33.3% W-o-W) were also amongst the top gainers. Blue Diamonds were the week’s highest price loser; declining 25.0% W-o-W to close at LKR0.60 while Serendib Hotels[NV](-21.2% W-o-W), Kelani Valley (-11.1% W-o-W) and Dialog Finance(-8.0% W-o-W) were also amongst the top losers over the week.

Foreign investors closed the week in a net selling position with total net outflow amounting to LKR 0.59Bn relative to last week’s total net outflow of LKR 0.41Bn (-44.3% W-o-W). Total foreign purchases increased by 151.5% W-o-W to LKR 0.81Bn from last week’s value of LKR 0.32Bn, while total foreign sales amounted to LKR 1.41Bn relative to LKR 0.73Bn recorded last week (+92.2% W-o-W). In terms of volume, JKH & Tess Agro led foreign purchases while Amana Bank & Dialog Axiata led foreign sales. In terms of value, JKH & HNB[X] led foreign purchases while HNB & Dialog Axiata led foreign sales.

Point of view

Sri Lankan equity markets soared this week, buoyed by optimistic investor sentiment amid several positive developments over the week. The World Bank, on Tuesday, revealed that Sri Lanka has shifted from lower-middle to the upper-middle income category based on GNI/Capita of $4,060 as of Jul’19 (cf. $3,840 in Jul’18). Data on tourist arrivals meanwhile displayed an increase of ~66% M-o-M to 63,072 in Jun’19 from 37,802 in May’19 following a drastic drop in the aftermath of Easter Sunday attacks, signalling a higher than anticipated recovery in tourist arrivals. Meanwhile, the official launch of the

$2.2Bn light rail transit project and cabinet approval for new infrastructure projects also boosted investor confidence. Consequently, the broad share index gained for 5-straight sessions this week to surpass 5,500 points, and hits its highest closing value since the Easter Terror Attacks.

The ASPI also recorded its largest weekly gain of ~144 (or 2.7% W-o-W) this week, the largest week on week gain since the constitutional crisis of Oct’18 that resulted in the sudden (albeit brief) dismissal of the incumbent Prime Minister. Consequently, the YTD loss on the ASPI was pared down to ~9% from ~11% last week. Despite the renewed optimism in equity markets, foreign investors continued to be net sellers this week, with a total net foreign outflow of Rs. 587Mn compared to an outflow of Rs. 407Mn last week, bringing the YTD net sell-off on domestic equities to Rs. 7.0Bn. Activity levels on the Bourse meanwhile remained elevated, and this week’s daily average turnover was in line with the YTD average of Rs. 0.55Bn (cf. Rs. 0.52Bn last week) as local retail investors also returned with renewed vigour to the market. Local HNI and Institutional investors contributed ~41% to total turnover this week with JKH accounting for 36% of total crossings during the week. Markets in the week ahead are likely to seek direction from ongoing political and economic developments

Dovish Monetary Policy Outlook drives EM/FMs

Compared to May’19 when global markets were preoccupied by escalating trade tensions between US-China, global markets in June have focused on the rising likelihood of a US Fed rate cut. While EM/FM markets experienced a reversal of fortunes in early-2019 due to the i) US Fed’s notable pivot from its previous policy stance and ii) cautious optimism over the potential conclusion of China – US trade talks, the breakdown of US-China trade negotiations and the threat of additional trade tariffs on Mexico in May stalled the market uptrend and pushed global markets on to the defensive.

Thus, although EM/FM markets gained notably between Jan-Apr’19 (MSCI EM Index rose 12%; MSCI FM Index rose 8%), the renewed trade tensions in May’19 caused the MSCI EM Index to lose 8% and the MSCI FM Index to lose 1%. Since May’19 though, global markets have reversed course, with the MSCI EM Index gaining 5% and the MSCI FM Index gaining 4% over June.

The revived risk appetite for EM/FM equities in June has been driven primarily by the expectation of accommodative global monetary policy, and this uptrend continued in the 1st week of July too as weaker US data heightened market expectations of US Fed rate cut rates as early as July.

The nomination of former IMF chief Christine Lagarde as the European Central Bank chief also fuelled market expectations of a dovish policy path for the EU region, helping EM/FM equity markets make further gains. The Sri Lankan Central Bank meanwhile applied new ceilings on Bank deposits for the 2nd time since Apr’19, causing lower rates to be offered on savings accounts, new deposits and renewals effective from July. Consequently, interest rates on savings accounts and 3M Fixed Deposits are capped at 7%, while rates on deposits over 6M but less than 1Y is capped at 8.83% and at 9.83% for FD’s over 1Y but less than 2Y.

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