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Wednesday June 19th, 2024

Sri Lanka stocks soar 3.9-pct, rupee slides in excess liquidity

ECONOMYNEXT – Sri Lanka stocks soared 3.91 per cent higher reaching up 14 per cent so far in 2021 while the rupee was defended around 193 to 194 to the US dollar, brokers and dealers said amid excess liquidity in money markets and low rates which had inverted forward premiums.

Colombo’s All share price index gained 3.91 per cent or 291.34 points to close at 7,734.57, in a record daily point gain. It was the highest daily gain since 2012, NDB Stockbrokers said in a note to clients.

The index is a tad below 7,812 reached on February 2011, but has topped 7,548 pointed reached on November 18, 2014, Capital Trust Securities said.

The S&P SL20 index of more liquid stocks gained 4.90 per cent or 136.46 points to close at 2,918.63.

LOLC Holdings contributed most to the index gain on Friday, closing 45.25 rupees up at 226.75 rupees a share.

LOLC Finance, a subsidiary of LOLC holdings gained 1.30 rupees to close at 8.10 rupees and Browns investments close 10 cents up at 7.50 rupees a share.

Expolanka Holdings gained 6.40 rupees to close at 53.40 rupees a share and Commercial Leasing and Finance gained 1.70 rupees to close at 8.70 rupees a share also contributing to the ASPI gain.

Liquid Demand

“There is pent up pent-up buying sentiment due to excess liquidity in the market and lower interest rates making stocks a more favourable asset class to investors,” a broker said.

“In this part of the world, fixed deposits have remained one of the prominent asset classes for investors however with the government reducing the rates potential investors have been looking elsewhere to invest.”

Sri Lanka money markets have had record excess liquidity of around 20 per cent of the monetary base or around 220 billion rupees amid a record bout of money printing, which has led to credit downgrades and a steady drain on foreign reserves through the financial account.

In the domestic markets, dollar yields have overtaken rupee yields making forward premiums negative, while the economy is tied up in import controls.

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Sri Lanka central bank forex interventions turn negative in November

Import controls and an import substitution strategy after money printing is driving up earnings of some domestic producers who are not efficient enough to export, while the falling rupee is helping export firms though real wage cuts, moderating price to earnings multiples.

Dipped products gained 19.75 rupees to close at 401.25 rupees a share and Haycarb gained 72.75 rupees to close at 757.75 rupees.

Lanka Ceramic closed 8.25 rupees up at 164.00 rupees a share and Royal Ceramic Lanka gained 5.25 rupees to close at 202.75 rupees a share.

Meanwhile, entrepreneurs running import-dependent businesses, who have been locked out of real economic activity, are also punting stocks, market participants said.

Stocks are up 14.1 per cent so far in 2021.

The rupee was defended around 193.50 to 194.00 levels in the spot market Friday, market participants said from around 185.50 to the US dollar at year-end.

Net foreign selling was 178,121,606 million rupees on Friday.

Foreigners have sold about 2.9 billion rupees of stocks so far, but also bought about 1.4 billion rupees.

Market turnover soared to 12.5 billion rupees on Friday, with 130 stocks gaining and 79 falling.

Banking Rally

The banking sector which has been lagging the rest of the sector amid fears over bad loans, also gained in the rally.

In the banking sector Hatton National Bank closed 1.50 rupees up at 128.25, Sampath Bank 3.00 rupees up at 141.20 rupees a share, Commercial Bank of Ceylon gained 2.30 rupees to close at 84.30 rupees and DFCC Bank closed 2.40 rupees up at 65.70 rupees.

In the hotel sector, Eden Hotel Lanka closed 2.50 rupees up at 13.40 rupees a share and Sigiriya Village hotel closed 50 cents up at 34.50 rupees while Aitken Spence Hotel holdings fell 1.00 rupee to close at 33.00 rupees, John Keels Hotels closed 30 cents down at 10.40 rupees a share.

Sri Lanka Telecom closed 4.10 rupees up at 42.60 rupees and Melstacorp Plc closed 5.90 rupees up at 62.70 rupees. Richard Pieris Company closed 50 cents up at 15.50 rupees.

John Keells Holdings closed 6.50 rupees up at 160.00 rupees a share.

On January 13 President Gotabaya Rajapaksa said Indian’s Adani Ports and partners will get a 49 per cent stake in the East container and the Sri Lanka government a majority of 51 per cent in a container terminal in Colombo Port.

About a third of the East Terminal had already been built, but the balance is estimated to require an investment of around 600 million dollars.

Read: Sri Lanka port terminal: India’s Adani group and partners to hold 49-pct

Ceylon Tobacco Company fell 6.00 rupees to close at 1,114.25 rupees while Ceylon Cold stores closed 4.25 rupees down at 695.50 rupees a share while Distilleries Company gained 1.40 rupees to close at 24.30 rupees.

Hayleys Plc closed 21.00 rupees up at 491.25 rupees and Softlogic Holdings closed 10 cents up at 13.50 rupees.

Tokyo Cement Company gained 4.30 rupees to close at 83.30 rupees while Piramal Glass Ceylon closed 30 cents up at 10.90 rupees a share.

Nestle Lanka closed 23.50 rupees down at 1,309.25 rupees and Dialog Axiata closed 20 cents down at 12.90 rupees.

Aitken Spence Plc closed 6.70 rupees up at 64.70 rupees while Carson Cumberbatch closed 12.00 rupees down at 305.25 rupees.

The Capital Goods industry was the most active, gained 5.4 per cent and Materials Industry which was also active gained 3.7 per cent (Colombo/January 15/2021)

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  1. Leel says:

    It seems pump and dump business is going good. Well done Nandasena.

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  1. Leel says:

    It seems pump and dump business is going good. Well done Nandasena.

Central banks expect to increase gold reserves after buying 1,037 tonnes in 2023: Survey

ECONOMYNEXT – About 29 percent of central banks in the world intended to increase their gold reserves in 2023, up from 24 percent in 2023 and just 8 percent in 2019, a survey by the World Gold Council showed.

“The planned purchases are chiefly motivated by a desire to rebalance to a more preferred strategic level of gold holdings, domestic gold production, and financial market concerns including higher crisis risks and rising inflation,” the WGC said.

About 81 percent of 70 central banks that responded to the survey expected global central bank holdings of gold to go up, from 71 percent in 2023.

While in prior years, gold’s “historical position” was the top reason for central banks to hold gold, this factor dropped significantly to number five this year.

This year, the top reason for central banks to hold gold is “long-term store of value / inflation hedge” (88%), followed by “performance during times of crisis” (82%), “effective portfolio diversifier” (75%) and “no default risk” (72%).

Concerns about sanctions were listed as by 23 percent of emerging market central banks (0 advanced).

De-dollarization as a reason to hold gold gained ground, but was not among the main reasons.

About 13 percent of emerging market central banks listed de-dollarization as one of the reasons to buy gold up from 11 percent last year and 6 advanced nations said the same from zero last year.

Around 49 percent of central banks expected gold reserves to be moderately lower five year from now in the 2024 survey, against 49 percent in 2023 and 38 percent in 2022.

About 13 percent of central banks surveyed said US dollar reserves would be significantly lower in the 2024 survey, up from 5 percent in 2023 and 4 percent in 2022. (Colombo/June18/2024)

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Sri Lanka rupee closes weaker at 304.75/305.40 to US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed weaker at 304.75/305.40 to the US dollar Tuesday, down from 304.15 to the US dollar Friday, dealer said, while some bond yields edged up.

Sri Lanka’s rupee has weakened amid unsterilized excess liquidity from earlier dollar purchases.

Excess liquidity fell from as high as 200 billion rupees, helped by some sales of maturing bills and also allowing some term contracts to run out.

However the central bank has started to inject liquidity again below its policy rate to suppress interest rates.

On Tuesday 30 billion rupees was printed overnight at an average yield of only 8.73 percent.

Separately another 25 billion rupees was printed till June 25 at 8.09 percent to 9.05 percent, which was still below overnight the policy rate of 9.5 percent.

Nobody has so far taken the central bank to court for printing money beyond overnight at rates lower than the overnight rate.

Sri Lanka operates an ad hoc exchange rate regime called ‘flexible exchange rate’ which triggers panic among market participants, as the central bank stays away when spikes in credit either creates import demand or unsterilized credit is used up.

“If large volumes of unsterilized liquidity is left, the exchange rate has to be closely defended to prevent speculation involving early covering of import bills and late selling of exports proceeds,” EN’s economic columnist Bellwether says.

“Just as an appreciating or stable exchange rate leads to late covering of import bills, a falling rates leads to immediate covering of import bills.

“Keeping exchange rates stable is a relatively simple exercise but it is difficult to do so if short term rates are also closely targeted with printed money, as liquidity runs out, as if the country had a free float and no reserve target.”

“When there is a large volume of excess liquidity remaining (except those voluntary deposited for long periods by risk averse banks) the the interest rates structure is under-stated compared to the reported reserves.

“Interest rates would be a little higher than seen in the market if the liquidity was mopped up and domestic credit and imports were blocked to prevent the reserves from being used up.”

In East Asia there is greater knowledge of central bank operational frameworks, though International Monetary Fund driven flawed doctrine are also threatening the monetary stability of those countries, critics say.

Related

Vietnam selling SBV bills to stabilize the Dong, as Sri Lanka rupee also weakens

Sri Lanka’s rupee started to collapse steeply after the IMF’s Second Amendment in 1978 along with many other countries as flawed operational frameworks gained ground without a credible anchor.

A bond maturing on 15.12.2026 closed at 10.10/30 percent up from 10.05/30 percent Friday.

A bond maturing on 15.10.2027 closed at 10.60/57 flat from 10.60/80 percent.

A bond maturing on 01.07.2028 closed at 11.15/35 percent, up from 11.05/20 percent.

A bond maturing on 15.09.2029 closed at 11.80/90 percent unchanged.

A bond maturing on 15.10.2030 closed at 11.90/12.00 percent.

A maturing on 10.12.2031 closed at 11.95/12.10 percent.

A bond maturing on 01.10.2032 closed at down at 11.95/12.10 percent, down from 12.00/10 percent. (Colombo/Jun14/2024)

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Sri Lanka’s Ceylon Chamber links up with Gujarat Chamber

ECONOMYNEXT – The Ceylon Chamber of Commerce has signed an agreement with the Southern Gujarat Chamber of Commerce and Industry (SGCCI) to increase trade cooperation between India and Sri Lanka.

The MOU was signed by CCC CEO Buwanekabahu Perera, SGCCI President Ramesh Vaghasia, in the presence of Dr Valsan Vethody, Consul General for Sri Lanka in Mumbai, India.

“With the signing of the MoU, … the Ceylon Chamber of Commerce and SGCCI aim to facilitate trade between the two countries via initiatives such as trade fairs and delegations, business networking events, training programmes,” the Ceylon Chamber said in a statement.

“This partnership will open doors for Sri Lankan businesses to explore opportunities in Surat’s dynamic market and enable the sharing of expertise and resources between the two regions.”

Established in 1940, SGCCI engages with over 12,000 members and indirect ties with more than 2,00,000 members via 150 associations. It promotes trade, commerce, and industry in South Gujarat.

The region’s commercial and economic centre Surat has risen to prominence as the global epicenter for diamond cutting and as India’s textile hub, and is ranked the world’s 4th fastest growing city with a GDP growth rate of 11.5%

Surat’s economic landscape is vibrant and diverse. As India’s 8th largest and Gujarat’s 2nd largest city, it boasts the highest average annual household income in the country.

The nearby Hazira Industrial Area hosts major corporations like Reliance, ESSAR, SHELL, and L&T. (Colombo/Jun18/2024)

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