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Sri Lanka stocks fall 5-pct in 2018, outperforms major markets

Economy Next – 31.12.2018

ECONOMYNEXT- Sri Lanka’s stocks have fallen 5 percent over 2018, outperforming major markets in the world which were battered amid Donald Trump’s economic nationalism and Federal Reserve rate hikes.

The Colombo All Share Price Index (ASPI) fell 316 points to 6,052.37 at end of trading on December 31, from 6,369.26  at the last day of trading in 2017 while market capitalization fell by 60 billion rupees to 2.84 trillion rupees , based on stock exchange data.

The index peak of 6,598.73  was reached on February 21, a week after the provincial council elections which strongman Former President Mahinda Rajapaksa won.

The stock market then tumbled gradually to an annual low of 5761.09  on October 19 before recovering to 6,092.21 on November 2, when President Maithripala Sirisena staged an unsuccessful coup against his coalition partner Prime Minister Ranil Wickremesinghe by attempting to replace him with Rajapaksa.

However, foreign sales of Sri Lankan stocks mirrored a regional trend, where investors sold out.

In the US the Dow Jones Index was also down 6.7 percent by December 28, with Trump raising import duties, disrupting trade while the Federal Reserve also raised rates, ending years of loose policy.

China’s Shanghai Composite Index was down 24.59 percent and Japan’s Nikei was down 12.08 percent, data from Bloomberg Newswires showed.

Colombo-based First Capital Research said it expected foreign investors to return to Sri Lanka in 2019.

“As we step into 2019, we are witnessing the global fund flow reversing towards Asia,” the brokerage said in a research note.

First Capital Research said that the ASPI could be expected to fluctuate between 6,000-6,500 in 2019, upgrading the firm’s past projection from 5,800-6,200.

However, it said that political stability created after the ending of the constitutional crisis is temporary and differences between the president and the Wickremesinghe’s United National Front will show in policy making.

Sri Lanka’s central bank which operates a soft-pegged exchange rate has also generated balance of payments pressure by injecting liquidity and defending the currency, which has panicked bond investors.

The rupee depreciated to 183 against the dollar in spot currency markets on December 31, 2018, down 19.7 percent from 152.85 on December 28, 2017. (Colombo/Dec31/2018)