Stock market gains to near 3-week closing high on eurobond issue

Reuters:  Shares closed at their highest in nearly three weeks on Tuesday, the fifth straight session of gains, as confidence in a new sovereign bond issued by the island nation helped boost investor sentiment.

Sri Lanka raised $1.5 billion in its first sale of dual-tranche eurobonds on Monday, at a lower borrowing cost than initially expected, as yield-hungry global investors put in over $5.5 billion in offers. The benchmark Colombo stock index ended 0.5% higher at 6,401.31, its highest close since 22 June. It gained 1.3% last week, its first weekly gain in four.

Investors, mainly local, bought into battered stocks after recent losses, although the day’s turnover was moderate.

“We see some investor confidence after the sovereign bond sale. It shows there is a huge demand for Sri Lankan bonds. Market expects some of these foreign investors might come into shares in future,” a stockbroker said asking not to be named.

Turnover stood at Rs. 562.6 million ($3.87 million), below this year’s daily average of around Rs. 736 million.

Overseas investors, who have offloaded shares worth a net Rs. 5.29 billion ($36.38 million) so far this year, bought equities worth a net Rs. 2 million on Tuesday.

Shares have been on a downward trend recently, hitting their lowest close since 7 April on Monday after falling for 10 out of 11 sessions, on worries over a capital gains tax on stocks, high interest rates and policy uncertainty.

Shares in top mobile phone operator Dialog Axiata gained 1.9%, while top lender Commercial Bank of Ceylon rose 1.4%.

Rupee ends lower as foreign investors prefer new eurobonds

​Reuters:  The rupee ended weaker on Tuesday on a lack of exporter dollar conversions and as foreign investors cut down on rupee bond buying in favour of a new higher-yielding sovereign dollar bond, dealers said.

Finance Minister Ravi Karunanayake however said the rupee would “obviously appreciate” after proceeds from the sovereign bond issue starts flowing in, and as other expected inflows increase the foreign reserves to $8.3 billion from the current $6 billion.

“When we have the appreciative reserves, then the rupee has to appreciate on the other side,” Karunanayake told reporters.

Sri Lanka raised $1.5 billion in its first sale of dual-tranche eurobonds on Monday, although at a lower borrowing cost than initially expected, as yield-hungry global investors put in over $5.5 billion in offers.

The Sri Lankan rupee one-week forwards, which have been acting as a proxy for the spot rupee, ended at 146.30/40 per dollar, weaker than Monday’s close of 146.20/50.

It traded at 146.67 per dollar intraday. The spot rupee is tightly managed by the central bank and market participants use the forward market levels for guidance on the currency.

“After the sovereign bond sale, we do not see much foreign buying in local bonds and that is the reason why we don’t see dollar liquidity in the market,” said a currency dealer, asking not to be named.

“Exporters have been holding in dollars because they still believe that the currency may fall further given that the macroeconomic fundamentals still point towards further downward pressure on the currency.”

The market was waiting to see if there could be any change in the currency level after inflows from the dollar bond issuance, dealers said.

The central bank did not intervene in the foreign exchange market for the sixth straight session on Tuesday, they said.

Last week, central bank governor Dr. Indrajith Coomaraswamy said the bank would manage the exchange rate flexibly, avoiding too much volatility.

The spot rupee was not quoted, but the spot-next, which are rupee forwards settled three days after the spot rupee settlement, ended at 146.20/30 per dollar, weaker than Monday’s close of 146.10/30, dealers said.