Rupee, stocks gain

Saturday, 8 December 2018 00:10 - - {{hitsCtrl.values.hits}}

REUTERS: The rupee ended firmer on Friday, helped by inward dollar remittances, but foreign investors continued to exit from bonds and stocks as a lingering political crisis weighed on market sentiment.

Foreign investors sold a net Rs. 17 billion ($ 95.3 million) worth of government securities in the week ended on 5 November, the highest weekly net outflows since the third week of February 2017. The stock market had net foreign outflows to the tune of Rs. 929.1 million this week.

The rupee ended at 178.70/85 per dollar on Friday, compared with 179.15/20 in the previous session. It gained to 178.50 during the trade due to dollar inflows from remittances.

Credit rating agencies Fitch and Standard and Poor’s downgraded Sri Lanka’s sovereign rating on Tuesday, citing refinancing risks and an uncertain policy outlook, after President Maithripala Sirisena’s sacking of his Prime Minister in October triggered a political crisis.

On Wednesday, Fitch downgraded Sri Lanka’s financial institutions and Sri Lanka Telecom, citing sovereign downgrade.

The Colombo stock index rose 0.61% to 6,069.22 on Friday. It rose 0.83% this week after a 1.5% rise last week. It has declined 4.7% so far this year.

Stock market turnover was Rs. 611.7 million on Friday, less than this year’s daily average of Rs. 830 million.

Foreigners sold a net Rs. 193.2 million ($ 1.08 million) worth of stocks on Friday, and they have been net sellers of Rs. 9.6 billion since the political crisis started on 26 October. The bond market saw outflows of about Rs. 51.2 billion between 25 October and 5 December, Central Bank data showed.

This year, there have been Rs. 19 billion of outflows from stocks and Rs. 143.4 billion from government securities, the latest data from the bourse and Central Bank data showed.

The rupee hit a record low of 180.85 per dollar on 28 November, surpassing its previous low of 180.50 hit the previous day. It has weakened about 3.1% since the political crisis began. The currency fell 1.8% in November and 16.3% so far this year.

Moody’s downgraded Sri Lanka on 20 November for the first time since it started rating the country in 2010, blaming the political turmoil for aggravating its already problematic finances.

The political paralysis remains the main concern of investors. While MP Mahinda Rajapaksa and President Sirisena have failed to win support in Parliament for their new Government, the deposed Prime Minister Ranil Wickremesinghe’s coalition, which claims it does have majority support in Parliament, has not been allowed to try to form a Government. Although Rajapaksa was ousted via two confidence votes, he has refused to step down.

The Central Bank on 14 November unexpectedly raised its main interest rates to defend the rupee, which has faltered as foreign capital outflows pick up due to the domestic crisis as well as rising US interest rates.

Five-year government bond yields have risen 60 basis points since the political crisis unfolded on 26 October, while yields on Sri Lanka’s dollar bonds due in 2022 have risen by more than a percentage point to 8.16% since the crisis began.