Sri Lanka stocks plunge to nearly 4 weeks on political and economic issues

ECONOMYNEXT – Shares in Sri Lanka fell 3.12% on Monday (6) to their lowest level in nearly four weeks as political and economic uncertainties rattled investor sentiment, brokers said.

Market trading was halted within minutes when the liquid S&P SL20 Index slid more than 5%.

The All Share Price Index (ASPI) closed down 3.12% or 251.16 points lower at 7,803.61, its lowest close since May 12.

“There is a bit of uncertainty about the 21st Amendment agreement, the budget and the talks with the IMF. All of these things are a bit risky,” said a market analyst.

Prime Minister Ranil Wickremesinghe has pledged to make the 21st amendment to the constitution to empower parliament and curb the power of President Gotabaya Rajapaksa after some of Rajapaksa’s own decisions without any consultation were blamed for pushing the country into the economic crisis.

“We need to get all of these on the right track. The market feels that there is not enough communication on the IMF program as global oil prices rise. There could be another round of fuel price hikes, again triggering fears of higher commodity prices.

Prime Minister Wickramasinghe has already implemented a series of import tax hikes as the country also experiences record fuel prices. It also increased value added tax (VAT) to 12% from 8% this week.

Although higher taxes are good for state finances and an IMF deal, they will affect profits.

The more liquid S&P SL20 index fell 4.10% or 108.61 points to 2,539.06.

Foreign investors bought shares with a net worth of Rs 49 million on Monday. The market has seen a total outflow of Rs 913 billion since the start of the year.

The market has so far lost 3.7% in June after gaining 6% in May. It lost 23% in April and 14.5% in March.

The market has lost 36% so far this year after being one of the best stock markets in the world with a return of 80% last year when large volumes of money were printed.

The market’s daily turnover was 1.4 billion rupees, about a third of this year’s average daily turnover of 3.8 billion rupees.

Sri Lanka’s sovereign default has already led it to a restricted/selective default rating by rating agencies and weighed on investor sentiment.

Investors are also concerned about the rupee’s sharp fall from 200 to 370 levels so far in 2022.

The All Share Price Index was mainly dragged down by LOLC Holdings, which fell 11.1% to 522.5 rupees per share.

Expolanka fell 8.6% to 192.5 rupees per share. Browns Investment sipped 9.4% to 8.7 rupees per share. (Colombo/Jun06/2022)