Softlogic Capital says CSE offers significant valuation upside

• Plunge in oil prices could save SL $ 1 b

Softlogic Capital Markets yesterday said the Colombo Stock Exchange, having lost 16% year-to-date, still offers a significant valuation upside. 

This recommendation was released yesterday in Softlogic Capital’s market update. 

The CSE on Tuesday declined by 221 points, recording the second biggest drop in a single day.

Global markets, which were already reeling from fears of the impact of coronavirus, declined even further as a full-blown oil price war rattled financial markets.

Equity markets lost 11.7% of their value (or 675 points) since 24 February 2020, with a series of global events contributing to the drag, such as the World Health Organization signalling the coronavirus outbreak could be inching closer to pandemic status on 25 February 2020 and the Federal Reserve slashing interest rates by half a percentage point on 3 March. 

Softlogic...

The recent crash in oil prices on 9 March 2020 was also a contributing factor. 

“Sri Lanka remains attractive in terms of valuations, trading at a PE of 9.5x, a 15% discount to the MSCI Frontier Market Index and 28% discount to the MSCI Emerging Market Index, indicating significant valuation upside,” Softlogic Capital said in its update. 

It also said that a plunge in global oil prices could offer $ 1 billion savings on Sri Lanka’s import bill.

“The trade deficit therefore could remain intact despite pressure on export earnings and a probable pick-up in both consumer and non-consumer goods by 2H2020E,” Softlogic Capital said.

“Broad market earnings could enhance further with declining commodity prices boosting margins, which would be on top of tax savings,” it added.

Inflation, Softlogic Capital said, could hover around the 5% level, if the benefit of low global commodity prices was passed down to the end consumer and when supply side constraints on food items eased off.