Controlling pandemic key for CSE’s rise
Managing the COVID-19 pandemic will see the Colombo Stock Exchange’s (CSE) further erosion, market analysts say.
Senaka Kekiriwaragodage, Acting CEO NDB Capital Holdings Ltd told the Business Times that Sri Lanka has a ‘big’ opportunity in this regard. “There are two opposing forces impacting the market. The pandemic is the negative force while the declining interest rates is the positive one.” The CSE is down because the pandemic has re-emerged, he said noting that for the market to come right towards the mid May-June levels, it has to be controlled.
With low interest rates capital migration will happen. “From fixed income securities, investors will put cash in real estate and stocks,” Mr. Kekiriwaragodage added.
He said that asset allocation by fund managers will change too. “So depending on how the pandemic will be arrested, they will gauge countries that will be attractive. Fund managers who have already invested in certain countries/who are familiar with particular markets will put money in those which have negated the pandemic issues.”
Markets are witnessing a trend of local investors switching from bonds to equities while foreign investors continue selling due to redemptions, Mattias Martinsson, CEO and CIO of Tundra Fonder in Stockholm told the Business Times.
The access to cheap money has primarily stimulated asset inflation, he said. “Asian markets have seen significantly less stimulus and interest rates (until recently) and a more significant stimulus in developed markets was led by US. “At some point we should see the valuation gap lessen between these two and a trigger for this is if the stimuli in Asian markets increase. Lately we have seen a bit of that. Both in Pakistan and Sri Lanka,” Mr. Martinsson said.
In their monthly newsletter Tundra Fonder say that once the flow from bonds to equities starts it tends to be a bit sluggish at first. “Lately local investors have gotten the better of foreign investors. We expect that to continue for some time. Foreign investors are likely to remain sellers, but less pronounced going forward,” Mr. Martinsson said.
In the month of June, Sri Lanka was the best performing market within the MSCI Frontier Markets Index with a gain of 6.2 per cent and since the market reopened for trading on May 11, the CSE All Share Index gained 17.7 per cent in USD terms till June 30, much ahead of the 5.8 per cent for the MSCI Frontier Markets Index. “Lower interest rates and very attractive valuations led to this rally,” Ruchir Desai, Co-manager of the AFC Asia Frontier Fund at Asia Frontier Capital said. Going forward, foreign investors will most likely wait for the Parliamentary elections to be over before actively entering the market again, he said.
“Investors will look for decisive, consistent and forward looking policies from the government and will also look at the government’s long term plan to manage the country’s debt levels,” he said.