Will Fed’s decision dampen sentiments at the Colombo bourse in the future?

Monday, 23 December 2013 00:37 - - {{hitsCtrl.values.hits}}

By Asia Wealth Management Short market week looming towards the holiday session closed up with the benchmark index advancing WoW by around 62 points. Daily turnovers and volumes for the week averaged at Rs. 873.0mn and 22.1mn, which was 173% and 64.0% higher over the corresponding week.

Activities continued to be mainly aided by large-scale transactions supported by Institutional and high net worth interest. However, despite a rise in foreign participation over the previous week, cumulative transactions resulted in a net out flow of Rs. 872.0mn scaling down the YTD figure to the Rs. 22.0bn mark from the Rs. 23.0bn mark achieved during the last week. Subsequent to the Fed’s decision over trimming its monthly bond purchase to USD 75bn from an earlier USD 85bn (as one of the first steps towards unwinding the stimulus put in place to revive the US economy after the financial crisis) due to the confidence placed on the declining un-employment rate and due to the improved economic outlook, many emerging markets witnessed their currency’s depreciating on concerns that the foreign inflows that were witnessed due to the stimulus would reverse due to the curtailment of the stimulus. However, the extent of fund out flows from the countries could largely depend on the growth profile of the economy and the structural weaknesses that are prevalent in the economy. Given the high growth prospects of the Sri Lankan economy to other emerging markets and due to measures taken by the monetary authorities to minimize weaknesses in the economy, we believe that if there are fund out flows in emerging markets such outflows will be limited in Sri Lanka.