Foreign participation rises in Colombo Bourse

Tuesday, 21 January 2014 00:03 - - {{hitsCtrl.values.hits}}

By First Capital Equities

With initial signs that global investors may have started shifting funds back into emerging market equities, most Asian markets have now started experiencing relatively robust foreign portfolio inflows and Sri Lanka has been no exception. While we do admit that the growth in hot money flows into the Asian region suffered due to the relatively low risk appetite for equities last year, in absolute terms, the figures achieved so far this year are encouraging. Foreign participation in Sri Lankan equities continued to accelerate with cumulative foreign purchases on an YTD basis reaching Rs. 3.7 billion ($ 28.1 million) while foreign sales totalled Rs. 3 billion ($ 22.7 million) resulting in net foreign purchases reaching Rs. 719 million ($ 5.4 million). While Sri Lanka’s net foreign portfolio flows are still considerably low when compared to peers in other global emerging/frontier markets, we believe that the inflows received so far this year have provided impetus both in terms of raising market turnover levels while also boosting investor sentiment.

Heading into the second half of the month, we expect foreign activity to continue to rise thereby providing healthy support to market volumes. 2014 corporate results will provide further market boost While we do agree that the bourse has not had an opportunity to reflect corporate performance last year given that most listed companies reported negative EPS growth, the good news however is that at current levels the market offers an attractive investment opportunity for hungry bottom fishers looking to ride the next market re-rating. With the majority of the companies expected to post a robust pick up in EPS growth, we expect the bourse’s 2014 trajectory to be further underpinned by the release of healthy corporate results. Market trajectory With the building up of market momentum, we expect the bourse to test the 6200 level next week. While equity investors have been hit relatively hard last year given the market’s lackadaisical movement, we believe the window to invest remains open now for those willing to choose an alpha driven approach. In this respect, we wish to emphasize that stock selectivity will determine the winners from the losers.