Shares end steady; rising interest rates weigh

Reuters: Shares ended steady on Monday as concerns over rising interest rates and foreign outflows erased early gains from positive sentiment after an IMF loan approval.

Turnover was very low at Rs. 476.2 million, well below this year’s daily average of around Rs. 788 million.

The International Monetary Fund’s (IMF) Executive Board has approved a three-year $1.5 billion loan to support Sri Lanka’s economic reform agenda, the global lender said on Saturday.

The benchmark Colombo stock index, which gained 0.46% in early trade, ended flat at 6,518.98. It declined 0.8% last week, losing for the third straight week after gaining six consecutive weeks.

Treasury bill yields rose between 4 and 35 basis points to near three-year highs in the last two weekly auctions through Wednesday despite the Central Bank leaving key policy rates steady for a third straight month on 20 May.

“Market was up in the morning due to the IMF news,” said Dimantha Mathew, Head of Research at First Capital Equities Ltd.

“With high interest rates, investors are still on a wait and see approach and the biggest issue is the foreign outflow.”

Investors are concerned about foreign outflows, with overseas investors offloading a net Rs. 92.3 million worth of shares on Monday, extending the year-to-date net foreign outflow to Rs. 5.64 billion.

Stockbrokers said a rise in interest rates could be detrimental to risky assets if they jumped beyond 12%. The average prime lending rate (AWPR) edged up eight basis points to 10.23% in the week ended 3 June.

Shares of Lion Brewery Plc fell 5.85% while shares of John Keells Holding Plc fell 0.19, dragging the overall index.