First Capital Equities on the status of Colombo Bourse
Monday, 24 February 2014 00:00
The last few weeks of February 2014 saw a turnaround in the strong market performance seen in the previous month, with improved 3Q2014/4Q2013 corporate results and the ‘January effect’ contributing to this reversal.
The market’s upward trajectory in January 2014 was supported by a low level of interest rates and sanguine EPS growth, resulting in optimistic buying behavior of both domestic and foreign investors.
First Capital Equities believes the rationale for the foreign outflows observed in the past few weeks is a result of foreign investors booking profits earned from their investments in blue-chip stocks rather than a reflection of the market’s poor performance.
Foreign flows are down, but not out
Meanwhile, despite strong domestic economic indicators and a decline in interest rates expected to thrust the market upwards, net foreign selling continued in the past few weeks. In the wake of outflows in global markets and most global markets recording losses on an YTD basis, Sri Lanka also experienced no exception.
With continuous foreign outflows in the last few days raising concerns among investors, First Capital Equities wishes to point out that foreign outflow was mainly triggered by foreign selling selected blue chip stocks as a result of foreign investors booking profits earned.
Look on the positive
With the recent outflows merely indicating foreign selling in blue-chip stocks rather than negative investor sentiment, First Capital Equities advises investors not to be deterred by the prevailing market conditions but to view this as an opportunity for investors to clean their books, select quality stocks and realign their portfolios to take advantage of future gains.
Further with Sri Lanka being among the few countries that has risen on an YTD basis against a backdrop of global outflows, First Capital Equities reiterates that investors should view this as a positive sign and thus remain confident of the Bourse’s direction.