Rupee, stocks gain; weekly net foreign outflows hit near 2-year high

REUTERS  - The Sri Lankan rupee ended firmer yesterday, helped by inward dollar remittances, but foreign investors continued to exit from bonds and stocks as a lingering political crisis weighed on market sentiment.

Foreign investors sold a net Rs. 17 billion (US$95.3 million) worth of government securities in the week ended on Nov. 5, the highest weekly net outflows since the third week of February 2017. The stock market had net foreign outflows to the tune of Rs.929.1 million this week.

The rupee ended at 178.70/85 per dollar yesterday, compared with 179.15/20 in the previous session. It gained to 178.50 during the trade due to dollar inflows from remittances. 

Credit rating agencies Fitch and Standard & Poor’s downgraded Sri Lanka’s sovereign rating on Tuesday, citing refinancing risks and an uncertain policy outlook, after President Maithripala Sirisena’s sacking of his prime minister in October triggered a political crisis.

On Wednesday, Fitch downgraded Sri Lanka’s financial institutions and Sri Lanka Telecom, citing sovereign downgrade.

Foreigners sold a net Rs.193.2 million (US$1.08 million) worth of stocks yesterday, and they have been net sellers of Rs.9.6 billion since the political crisis started on Oct. 26. The bond market saw outflows of about Rs.51.2 billion between Oct. 25 and Dec. 5, Central Bank data showed.

This year, there have been Rs.19 billion of outflows from stocks and Rs.143.4 billion from government securities, the latest data from the bourse and Central Bank data showed.

The rupee hit a record low of 180.85 per dollar on Nov. 28, surpassing its previous low of 180.50 hit the previous day. It has weakened about 3.1 percent since the political crisis began. The currency fell 1.8 percent in November and 16.3 percent so far this year. 

Moody’s downgraded Sri Lanka on Nov. 20 for the first time since it started rating the country in 2010, blaming the political turmoil for aggravating its already problematic finances. 

The political paralysis remains the main concern of investors. While Mahinda Rajapaksa and President Sirisena have failed to win support in parliament for their new government, the deposed Prime Minister Ranil Wickremesinghe’s coalition, which claims it does have majority support in parliament, has not been allowed to try to form a government. Although Rajapaksa was ousted via two confidence votes, he has refused to step down.

The Central Bank on Nov. 14 unexpectedly raised its main interest rates to defend the rupee, which has faltered as foreign capital outflows pick up due to the domestic crisis as well as rising U.S. interest rates.

Five-year government bond yields have risen 60 basis points since the political crisis unfolded on Oct. 26, while yields on Sri Lanka’s dollar bonds due in 2022 have risen by more than a percentage point to 8.16 percent since the crisis began.

The Colombo stock index rose 0.61 percent to 6,069.22 yesterday. It rose 0.83 percent this week after a 1.5 percent rise last week. It has declined 4.7 percent so far this year. 

Stock market turnover was Rs.611.7 million yesterday, less than this year’s daily average of Rs.830 million.