Foreign outflows continue to plague Sri Lanka’s capital markets

July 6, 2019 (LBO) – Foreign investors continue to be net sellers of Sri Lankan stocks and bonds with net outflows reaching their highs for the year.

Net outflows from stocks and bonds hit a high of close to Rs30bn (US$170mn) for 2019. This comes on the back of net outflows of one Rs180bn (US$1bn) for 2018.

In the previous budget the government had projected significant inflows into the capital markets that would help bolster the country’s foreign reserves. With the economic fallout from recent terror attacks, those projected inflows have failed to materialise.

With interest rates being reduced, Sri Lankan government securities are looking less attractive to foreign investors. The lower interest rates could result in further selling out of Sri Lanka’s bond market.

The stock market was up sharply last week, despite continued net outflows from foreign investors. The state pension funds have started buying stocks again after a multi year hiatus giving support to the market.

The Sri Lanka Rupee (LKR) has remained stable at close to Rs176 to the dollar. The economic slowdown caused by the terror attacks has reduced the import bill which has caused the currency to remain buoyant.