Political stability key for stock market highs
Sri Lanka’s political stability was rated as a critical factor for the momentum in the Colombo stock market along with other fundamentals and impending budget proposals which will capitalise on the country’s growth thrust.
Analysts noted that the country came out on top in debt restructuring, the low-interest rate regime, and improved tourist arrivals. Inward remittances, and President Anura Kumar Dissanayake’s recent visit to China, which saw 15 bilateral agreements being signed as positive sentiment creators.
Sri Lanka and China committed to advancing major development, including Colombo Port City and Hambantota Port. The joint statement during President Dissanayake’s China visit highlighted a Belt and Road cooperation plan for successful development.
“After the President’s recent visit, the notion that China will assist
Sri Lanka in its economic transformation is a major positive for the Colombo Stock Exchange. The rating upgrade after that restructuring has given the country some breathing space,” a stock market analyst told The Sunday Times Business.
A second analyst agreed, noting that the new government has not taken drastic people-friendly decisions such as decreasing fuel prices etc. “This highlights the government’s credibility. Taking it into account, the investors are likely to trust policies by the government.” Stockbrokers noted that currently, the banking sector is driving the share market. “The price to book value (PBV) is trading at around 0.8X in banks such as Sampath, Commercial, and HNB. Seylan, Pan Asia, NDB and DFCC it is at around the 0.5 to 0.6X range. “Going forward, we see a growth of about one to two times in the PBV in this sector,” he added.
Foreign investors are also showing more interest in the Sri Lankan stock market. “We see certain signs of flows (we launched a new fund in July as an example). The first phase of the revaluation where investors realised the country would not go under is now over. From here it will be about macro stability (right now focus on the current account but will gradually also include fiscal balance) and corporate profit growth. Provided there are no unpleasant surprises in terms of economic policy we would expect foreign interest to gradually increase from here,” Tundra Fonder AB Founder/CIO Mattias Martinsson said.
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