Sri Lankan shares slump to over 17-month closing low

COLOMBO, Jan 7 (Reuters) – Sri Lankan shares fell for a fourth straight session on Thursday to close at their lowest level in over 17 months as continued foreign selling weighed on the market, amid fears over investors shifting to risk-free assets such as government securities.

Local investor appetite for risky assets eroded after the central bank raised commercial banks’ statutory reserve ratio last week by 150 basis points with effect from Jan. 16.

The main stock index ended 0.62 percent down at 6,775.27, its lowest close since July 21, 2014. It has fallen 1.7 percent so far this week.

Foreign investors sold a net 251.85 million rupees ($1.75 million) worth of equities on Thursday and a net 1.56 billion rupees worth of equities so far this year, as compared with 4.43 billion rupees in 2015.

"The market is losing ground as foreigners are exiting daily," said Yohan Samarakkody, head of research, SC Securities (Pvt) Ltd.

"This year will be packed with a lot of global uncertainties. So investors want to park their investments at safer locations," he added.

After China witnessed a fall in the yuan, global shares tumbled for a sixth session on Thursday, oil prices fell to near 12-year lows, and Shanghai shares dived 7 percent, igniting fears of competitive devaluations across Asia.

Following the central bank’s move, the yield on 91-day t-bill rose 14 basis points to an over-two-month high of 6.59 percent at a weekly auction on Wednesday.

Analysts expect more investors to shift from risky assets to fixed assets with higher interest rates and shrinking of global investments in Sri Lanka.

Shares in conglomerate John Keells Holdings Plc fell 1.76 percent while Sri Lanka Telecom Plc lost 2.4 percent, dragging the overall index.

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