Stocks down as market awaits new Cabinet

• Market stakeholders say who will get finance portfolio will be key for market sentiment 
• Both indices at the CSE close in the red; foreigners net sellers
• So far this year, there have been Rs.20.8bn of outflows from stocks and Rs.148.2bn from g-secs

The indices at the Colombo Stock Exchange (CSE) closed in the red territory yesterday as the country awaits for the appointment of a fresh Cabinet of ministers following the appointment of Ranil Wickremesinghe as the Prime Minister last Sunday after over a 50-day political stalemate.

The market stakeholders Mirror Business talked to said the market sentiment going forward may depend a lot on the quality and credibility of the Cabinet ministers appointed, and particularly on who will take over the country’s finance ministry. 

Many at the United National Front (UNF) want to go back to the status quo that prevailed before October 26 in terms of the Cabinet of ministers, but such a scenario has become unfeasible given the crossovers and the politics that played out within the UNF post October 26.

It is no secret that the former finance minister Ravi Karunanayke, who was forced to resign following the presidential bond inquiry, is set to make a comeback as the finance minister, while his successor Mangala Samaraweera wants the coveted portfolio to be given back to him. Sources suggest that the infighting might result in both Karunanayke and Samaraweera not getting the portfolio and it be given to a compromise candidate.  

On top of that Wickremesinghe and President Sirisena are also said to be in disagreement over the subjects the President wants to keep for himself.
Meanwhile, the main share index at the Colombo bourse, All Share Price Index (ASPI) closed at 6047.48, down 20.15 points or 0.33 percent yesterday while the more liquid SP SL20 index closed at 3127.89 down 14.02 points or 

0.45 percent. The market turnover stood at Rs.979.2 million. According to Asia Securities, crossings accounted for 67 percent of the turnover with two crossings recorded in John Keells Holdings PLC (JKH) and Dialog Axiata PLC.

The diversified sector was the highest contributor to the turnover at Rs.709 million, followed by telecom sector and banks, finance & insurance sector generating Rs. 123 million and Rs.122 million, respectively. 

Despite the resolution of the political crisis, foreign investors continued to exit the equities market being net sellers of Rs.784 million worth of shares, while their participation in terms of turnover increased to 50.7 percent vis-à-vis 10.8 percent previously. 

According to Reuters, foreigners have been net sellers of Rs.11.4 billion worth of stocks since the political crisis began on October 26. The bond market saw outflows of about Rs.56 billion between October 25 and December 14, the Central Bank data showed.

So far this year, there have been Rs.20.8 billion of outflows from stocks and Rs.148.2 billion from government securities.

Asia securities said estimated net foreign selling topped Rs.696.9mn in JKH. Retail activity was witnessed in counters such as Dialog, Access Engineering and Ceylon Tobacco.

Rupee ends weaker on foreign outflows

(Colombo) REUTERS: The Sri Lankan rupee ended weaker yesterday amid pressure on the currency due to foreign outflows from bonds and stocks as uncertainty from a lingering political crisis weighed on sentiment.

The political crisis was expected to ease after President Maithripala Sirisena reinstated Ranil Wickremesinghe, whom he ousted in October and plunged the country into a 51-day crisis.

Political paralysis remained the main concern for investors since Sirisena abruptly sacked Wickremesinghe and replaced him with Mahinda Rajapaksa, who failed to win a parliamentary majority and resigned on Saturday as a government shutdown loomed.

Wickremesinghe was sworn in as Sri Lanka’s Prime Minister on Sunday, making a remarkable comeback weeks after being ousted by President Sirisena under controversial circumstances. 

The Sri Lankan rupee strengthened in early trade on Monday, while bond yields dropped as a seven-week political crisis appeared to ebb, but investors took a cautious stance to observe whether Sirisena and Wickremesinghe could work well together.

The rupee ended at 180.10/30 per dollar, compared with 179.90/180.00 in the previous session. 

Credit rating agencies Fitch and S&P downgraded Sri Lanka’s sovereign rating early December, citing refinancing risks and an uncertain policy outlook, after Sirisena’s sacking of his Prime Minister in October triggered the political crisis.

The rupee hit a record low of 180.85 to the dollar on Nov. 28. It has weakened about 3.8 percent since the political crisis began. The currency dropped 1.8 percent in November, and has lost 17.1 percent 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.

Five-year government bond yields have risen 50 basis points since the political crisis began, while yields on Sri Lanka’s dollar bonds due in 2022 , which have risen around a percentage point to 8.0 percent through Friday, fell 0.4 percent to 7.6 percent yesterday.