Sri Lanka stock market overtakes Vietnam, trails Venezuela
ECONOMYNEXT – Sri Lanka stocks have risen 24.9 percent in 2021, leaving investors 739 billion rupees richer in the first 22 days of the year, with modern monetary theory driven policy keeping rates low and putting pressure on the currency.
The increase is around 4.9 percent of Sri Lanka’s gross domestic product of 15 trillion rupees in 2019.
In the week to January 22 stock values gained 318 billion rupees, compared to 109 billion rupees for the whole of 2020.
The CSE All Share Index overtook Hanoi Stock Exchange in Vietnam, which is up 18.2 percent so far in 2021 in Vietnam dong and 18.34 percent in US dollar terms, according to Bloomberg, a news and data provider.
Sri Lanka is only behind Venezuela which is up 44.6 percent. There is no comparable dollar value as the country is now becoming de facto dollarized amid a loss of confidence in the note issue of its Prebisch-Triffin style central bank.
Sri Lanka’s Colombo Stock Exchange was up 17.2 percent in dollar terms, amid record money printing.
Sri Lanka is also ahead of Bulgaria’s BSE Sofix Index which is up 11.43 percent in local currency and 11.07 percent in US dollars.
Bermuda stock exchange is up 10.34 percent in domestic currency and US dollars. Bermuda has a currency-board like system and the exchange rate does not move.
Reserve currency central banks (with floating rates) such as the Fed have been printing money in 2020, driving stocks and commodities to record levels.
Sri Lanka has been printing money since early 2019, triggering currency falls and credit downgrades as well as import controls.
Import controls have pushed up profits of several companies making their earnings multiples low by historical standards. A majority of companies that have seen steep price rises recent weeks have reported strong profits, keeping their earnings multiples under check.
Under an import substitution framework, the firms have been given assurances of protection, punters who buy up stocks say.
Sri Lanka’s foreign reserves have come under pressure amid liquidity injections. Sri Lanka’s forward forex premiums are now negative.
In 2021 excess liquidity has dropped, whether it is happening involuntarily due to interventions and financial account outflows, or through deliberate policy is not clear. (Colombo/Jan24/2021)