CSE dips to over 2-month low ahead of rates decision; Brexit weighs

Reuters:  Shares fell for a fifth straight session to a more than two-month closing low on Friday as investors turned cautious ahead of a rate announcement by the central bank and as Britons voted to leave the European Union.

The bourse fell 1.5 % 

on the week. The benchmark Colombo stock index ended down 0.44 %, or 27.95 points, at 6,370.11, its lowest close since 12 April.

Results from Thursday’s referendum showed that Britain voted to leave the 28-member bloc, a stunning repudiation of the nation’s elites, that deals the biggest blow to the European project of greater unity since World War II.

“Investors are worried over the Brexit, as it can impact Sri Lankan exports and some foreign funds might exit from Sri Lanka,” said Softlogic Stockbrokers Research Head Danushka Samarasinghe.

“But the bigger issue is related to in-house problems. For investors, how the local reforms are taking place is the main concern compared to other external factors,” he said.

A possible rate hike at the central bank’s monetary policy announcement later in the day and a lack of clarity in a proposal to reintroduce capital gain tax also weighed on the market.

The central bank will announce June monetary policy rates at 1230 GMT on Friday and the market broadly expects rates to be left steady for a fourth straight month, although a possible rate hike is not ruled out.

Sri Lanka’s cabinet on 15 June  approved a proposal to reintroduce the capital gains tax, especially on land sales.

Treasury bill yields rose between 1 and 3 basis points at a weekly auction on Wednesday. They have risen between 7 and 43 basis points since the central bank left the key policy rates steady on 20 May.

Overseas funds offloaded Rs. 1.7 million ($11,572.50) worth of equities on Friday, extending the year-to-date net foreign outflow to Rs. 6.03 billion worth of shares.

Turnover stood at Rs. 261.3 million rupees, lowest since Feb. 11 and well below this year’s daily average of around Rs. 748.8 million.

Shares in Hemas Holdings Plc fell 2.03 % while Aitken Spence Plc slipped 5.91 %  and the biggest-listed lender Commercial Bank of Ceylon Plc lost 1.21 %.