Sri Lanka stocks snaps 5-day rally on foreign outflows; rupee falls

Reuters: ** Sri Lankan shares snapped a five-day rally to end a tad weaker on Friday, slipping from a near six-week high hit in the last session, as foreign fund outflows from equities continued, while the rupee fell on persistent dollar demand from importers. 

** The benchmark stock index ended 0.07% weaker at 5,383.72, edging down from its highest close since May 3 hit on Thursday. But it rose 1.61% for the week. The bourse fell 11.05% this year so far. 

** The central bank cut its key interest rates on May 31 to support a faltering economy as overall business and consumer confidence slumped following deadly bomb attacks in April.

** Sri Lanka is unlikely to hit its full-year economic growth target of 3-4% following the bombings, junior finance minister Eran Wickremeratne told Reuters last month. A Reuters poll has forecast growth to slump to its lowest in nearly two decades this year. 

** The government’s pension fund has resumed investing in risky assets as the stock market is “extremely undervalued at the moment and is considered a good time to go in”, the central bank governor said last month at its monetary policy meet. 

** Friday’s stock market turnover was 1.14 billion Sri Lankan rupees ($6.45 million), more than twice this year’s daily average of about 530.3 million rupees. Last year’s daily average was 834 million rupees. 

** Foreign investors sold a net 61.4 million rupees worth of shares on Friday extending the net foreign outflow for the past five days to 388.4 million rupees. The year-to-date net foreign outflow was at 5.91 billion rupees. 

** The rupee ended at 176.70/90 per dollar, compared with Thursday’s close of 176.60/70, market sources said. 

** Analysts expect the rupee to weaken further as money flows out of stocks and government securities. 

** The rupee fell 0.14% for the week but is up 3.34% for the year. Exporters had converted dollars as investors’ confidence stabilised after a $1 billion sovereign bond was repaid in mid-January. 

** The rupee dropped 16% in 2018 and was one of the worst-performing currencies in Asia. 

** Foreign investors bought a net 311 million rupees worth of government securities in the week ended June 12, but the island nation’s net foreign outflow was at 21.6 billion rupees so far this year, central bank data showed. 

($1 = 176.7000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Rashmi Aich)

Sri Lanka sells 2-yr bond at 9.79-pct, 9-yr bond at 10.63-pct

ECONOMYNEXT- Sri Lanka sold a 2-year bond and a 9-year bond at close to market rates at Thursday's auction which will be settled on June 17, data from the state debt office showed.

The Public Debt Department sold 30 billion rupees of a 2-year bond maturing on 15.10.2021 at a weighted average yield of 9.79 percent in the primary auction.

The newly issued bond closed trading on Thursday in the secondary market at 9.75/80 percent, dealers said.

A closely maturing 15.12.2021 bond had opened at 9.75/85 percent before the auction and had closed flat on Thursday.

The state debt office sold 40 billion rupees of a 9-year bond maturing on 15.03.2028 at a weighted average yield of 10.63 percent at the auction.

The bond closed trading at 10.60/70 percent in the secondary market.

A closely maturing 01.08.2028 bond closed at 10.65/75 percent.

A 15.06.2027 bond closed at 10.60/70 percent, identical to the new bond, dealers said.

First Capital upgrades exchange rate outlook for 2019E to LKR 180 from 194

LBO – Sri Lanka’s First Capital Research has upgraded their exchange rate outlook for 2019E to 1 USD: LKR 180 from 194 as their 65 percent base case scenario.

The firm has also introduced a 12-month target for Jun 2020E of 1 USD: LKR 185 as a 60 percent base case scenario.

“In spite of the recent rate cut, the weakness of the rupee may be limited considering the delay in consumer demand while Rupee is also likely to be supported by the weak dollar and targeted debt driven inflows,” the firm said.

Central Bank’s foreign reserve position is key in building confidence in the exchange rate.

Currently, as at May 2019, foreign reserves stood at 6.7 billion US dollars which is estimated to be above the targeted 4 months of imports.

Heavy dip in imports has reduced the overall comfortable level of foreign reserves.

“In order to maintain reserves at USD 6.5-7.0Bn range, CBSL needs to raise a further USD 2Bn for which cabinet approval has already been obtained.”

CBSL also targets an additional 2.5 billion dollars to be raised to meet payments falling due in 2020 before the election season which starts in 4Q2019 and may continue up to 2Q2020.

First Capital Research says if Sri Lanka is successful in raising the required funds via foreign debt over next couple of months, the foreign reserve position could be maintained at a reasonably comfortable level which they believe is 6.5 billion dollars considering the prevailing environment.

Following the Easter Sunday attacks, with immediate effect, the tourism sector saw heavy cancellations flowing in for 2019 while many small scale hotels and resorts decided to shut down for 6 months.

“We estimate the tourism earnings are likely to fall short by USD 1.5-2.0Bn from the original estimate,” First Capital Research said.

“In addition to the loss in foreign exchange, the net impact is, however, much lower as consumer demand crashed almost immediately and is yet to recover.”

As a result imports have seen a further crash following the attacks amidst the lower consumer demand and 30 percent of tourism earnings estimated to be imports.

Amidst a further hit in imports despite the loss in revenue from tourism the Sri Lankan Rupee stands steady with a YTD appreciation of 3.5 percent up to 31 May 2019.

Meanwhile, the US Dollar is expected to weaken during the 2H2019 possibly favouring the Sri Lankan Rupee.