Stock market ends lower on rising rates, economic worries

Tuesday, 16 February 2016 00:10 - - {{hitsCtrl.values.hits}}

Reuters : Sri Lankan shares edged down for the sixth straight session on Monday to close at a more-than-three-week low, as rising domestic interest rates forced investors to stay off risky assets while concerns over global worries also weighed.

Sri Lanka’s main stock index ended down 0.27 percent at 6,266.17, its lowest close since 20 January. It fell 1.9 % last week.

Foreign investors were net sellers of Rs. 169.6 million worth of shares on Monday, extending the year-to-date net foreign outflow to Rs. 345.7 million worth of equities.

“Investors expect the market to come further down as the selling side remains high with no match for the buyers. Even buyers are waiting for prices to ease further,” said First Capital Equities Ltd Research Manager Dimantha Mathew.

“If this continues we may see a round of margin calls which will speed up the fall.”

The key index has fallen 9.1 % this year through Monday, amid a rise in market interest rates.

Yields on t-bills rose between 8 and 17 basis points at a weekly auction on Wednesday, with the 182-day and the 364-day t-bill yields climbing to more-than-two-year highs, signalling a further rise in market interest rates.

Some investors are shifting to fixed interest rate-bearing assets due to a gradual rise in interest rates, analysts said.

Turnover was Rs. 491.7 million , less than this year’s daily average of Rs. 733.5 million.

Shares of Nestle Lanka Plc fell 1.23 % while Lanka ORIX Leasing Company Plc eased 0.26 % and Dialog Axiata Plc lost 0.99 %.

Rupee forwards edge down, further decline seen

Reuters: Sri Lankan rupee forwards ended weaker on Monday on importer dollar demand, while dealers said they expected the currency to depreciate further due to rising imports, selling of government securities by foreign investors and slowing dollar inflows.

One-week rupee forwards, which act as a proxy for spot, ended at 144.50/55 per dollar, compared with Friday’s close of 144.37/42.

Rupee forwards have been active since 27 January as there has been little trading in the spot currency, with banks reluctant to trade below the 144.00 level amid moral suasion by the Central Bank.

Central Bank officials did not respond to calls seeking comment.

“The rupee will be under pressure as we see bond sales by foreigners. If the Central Bank does not give them dollars directly, the rupee will further depreciate,” said a currency dealer asking not to be named.

Foreign investors sold Rs. 3.07 billion ($21.33 million) worth of government securities between 3 – 10 February, data from the Central Bank showed, taking the total offloading since 30 December to Rs. 22.4 billion.

The rupee is under pressure due to a lack of inflows, and a pick-up in importer demand ahead of the festive season in April, dealers said.

Sri Lanka needs to pay more than $5 billion in foreign loans including interest payments in 2016, while its reserves were only around $6.3 billion at the end of January, according to Central Bank data.

Dealers said the Central Bank would not be able to hold the rupee at current levels without strong dollar inflows.

The Central Bank usually intervenes in times of high volatility though it floated the rupee on 4 September 2015.

Commercial banks parked Rs. 34.362 billion ($239.66 million) of surplus liquidity on Monday, using the Central bank’s Deposit facility at 6%, official data showed.

Secondary market bond yields steady as activity dries up

By Wealth Trust Securities

Activity in secondary bond markets dried up, with a limited amount of trades of the 15 May 2030 taking place at levels of 11.25% to 11.35%. Rates along the rest of the yield curve were seen closing the day broadly steady against its previous trading day’s closings levels.

In money markets, the weighted average yield on overnight call money and repo rates increased further to 6.90% and 6.58% respectively as surplus liquidity decreased to Rs.34.36 billion.

Rupee on spot and one week forward contracts depreciates

The USD/LKR rate on spot as well as active one week forward contracts were seen losing ground to close the day at Rs.143.98/30 and Rs.144.45/55 respectively against its previous day’s closing levels of Rs.143.95/20 and Rs.144.38/42 on the back of continued importer demand.

The total USD/LKR traded volume for 12 February was $ 87.75 million.

Some of forward USD/LKR rates that prevailed in the market were: one month – 144.90/85; three months – 146.15/20; and six months – 148.00/30.

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