ECONOMYNEXT – Foreign investors are showing continuing interest in investing in Sri Lankan stocks with net flows in January 2018 a new high for the month, indicating confidence in the economy and company performance.
The Colombo Stock Exchange said the Rs. 4 billion in net foreign purchases during the month of January was a new record for the first month of any given year.
CSE Head of Market Development Niroshan Wijesundere said foreign investors indicated renewed interest in Sri Lankan stocks in 2017 with record breaking purchases worth Rs. 112 billion.
“The level of interest we have seen within the very first month of the year is quite encouraging and indicates that Sri Lankan stocks remain attractive to foreign portfolio investors, especially those with investment interests in frontier markets,” he said in a statement.
“What is particularly encouraging is that the level of foreign buying we have seen in 2017 and in the early parts of this year mark a sharp reversal from 2015/16, during which we saw significant fund outflows.”
Sri Lanka at the moment is viewed as a market with considerable growth potential, Wijesundere said.
Foreign interest was driven by attractive valuations with the market Price Earnings Ratio at 10.69 – one of the lowest in the region, encouraging performance among listed companies and an improving macroeconomic outlook.
“There have also been the odd one-off factors such as Pakistan achieving emerging market status mid last year and more funds moving into Sri Lanka as a result of portfolio rebalancing,” Wijesundere said.
“On the other hand, while positive local developments have definitely served us well, a supportive global backdrop for Asian stocks and frontier markets in 2017 where we have seen an influx of funds to Asia has helped channel foreign investment to the CSE.”
Wijesundere said increased international interest in the stock market would lead to a broader focus on the country as a whole, and would benefit the Sri Lankan economy and listed companies in their bid for growth.
“Recent developments in the Sri Lankan stock market in the foreign investment front would therefore be certainly encouraging, even to FDI investors that are considering investing in Sri Lanka.”
Wijesundere said, for the CSE to develop in the long run, an upgrade to the emerging market classification would expand its scope in generating foreign investments into the market as it would open up the market to a wider base of portfolio investors.
“Substantial developments in terms of market size and liquidity need to be achieved in this regard, supported by macro-economic developments and improvements to market infrastructure.
“While this is certainly an objective we are working on, factors such as the listing of large state-owned enterprises, a healthy, positive economic outlook and sustained political stability which are largely external factors, need to work in the market’s favor for an emerging market status to be achieved.”
(COLOMBO, February 08, 2018)