Monday, July 1, 2019

Rupee gains 3.7% YTD amid ISB issuances

The Bourse ended the week on a positive note as the ASPI increased by 8.78 points (or +0.16%) to close at 5,372.28 points, while the S&P SL20 Index also increased by 7.58 points (or +0.30%) to close at 2,496.56 points.

Harischandra was the highest contributor to the week’s turnover value, contributing LKR 0.76Bn or 29.12% of total turnover value. Swadeshi followed suit, accounting for 20.28% of turnover (value of LKR 0.53Bn) while Sampath Bank contributed LKR 0.33Bn to account for 12.68% of the week’s turnover. Total turnover value amounted to LKR 2.59Bn (cf. last week’s value of LKR 4.45Bn), while daily average turnover value amounted to LKR 0.52Bn (-41.8% W-o-W) compared to last week’s average of LKR 0.89Bn. Market capitalization meanwhile, increased by 0.02% W-o-W (or LKR 0.60Bn) to LKR 2,523.38Bn cf. LKR 2,522.78Bn last week.

The Banks, Finance & Insurance sector was the highest contributor to the week’s total turnover value, accounting for 24.89% (or LKR 0.65Bn) of market turnover. Sector turnover was driven primarily by Sampath Bank, Central Finance & Commercial Bank which accounted for 77.00% of the sector’s total turnover. The Beverage, Food & Tobacco sector meanwhile accounted for 31.14% (or LKR 0.81Bn) of the total turnover value, with turnover driven primarily by Harischandra which accounted for 93.52% of the sector turnover. The Manufacturing sector was also amongst the top sectorial contributors, contributing 22.14% (or LKR 0.57Bn) to the total turnover, with turnover driven primarily by Swadeshi accounting for 91.57% of the total turnover.

The Banks, Finance & Insurance sector dominated the market in terms of share volume, accounting for 31.80% (or 17.05Mn shares) of total volume, with a value contribution of LKR 0.65Bn. The Diversified sector followed suit, adding 16.79% to total turnover volume as 9.00Mn shares were exchanged. The sector’s volume accounted for LKR 0.33Bn of total market turnover value. The Manufacturing sector meanwhile, contributed 5.13Mn shares (or 9.57%), amounting to LKR 0.57Bn.

Morisons[NV] was the week’s highest price gainer; increasing 24.3% W-o-W from LKR561.00 to LKR697.60 while Sathosa Motors(+21.2% W-o-W), Singhe Hospitals(+16.7% W-o-W)and Lucky Lanka[NV](+14.3% W-o-W) were also amongst the top gainers.

Tess Agro[NV] were the week’s highest price loser; declining 25.0% W-o-W to close at LKR0.30 while Serendib Hotels(-19.4% W-o-W), Lee Hedges(-17.6% W-o-W) and Nation Lanka(-16.7% W-o-W) were also amongst the top losers over the week.

Point of View

Equity markets closed largely flat this week, as the successful issuance of $2Bn worth of International Sovereign Bonds failed to fully offset concerns over the Executive’s decision to revive the death penalty. The CBSL on Monday successfully raised $2Bn worth of ISB’s in international bond markets at a yield 25Bps lower than the initial price guidance as renewed interest in EM/FM bond markets (amid expectations of a US Fed rate cut in July) helped push rates lower than that of a similar issuance in March. However, international backlash to the reinstatement of capital punishment in Sri Lanka after a 43-year moratorium spurred concerns over the potential impact to the country’s access to GSP+ access to the EU, and markets lost 21 points early in the week following the announcement. Although the markets subsequently gained 33.2 index points to pare down the week’s losses, the broadshare Index ended the week largely unchanged from last week. Foreign investor’s meanwhile were net sellers for the 3rd consecutive week in June, with the majority (~74%) of the domestic equity sell-off occurring post the death penalty announcement. The week’s net selling position consequently rose sharply (to Rs. 407Mn from Rs.21Mn) over the week, bringing the YTD net sell-off on domestic equities to Rs. 6.3Bn (cf. Rs.1.6Bn sell off in the 1st six months of 2018). Market turnover levels meanwhile continued to remain boosted largely by a single high net worth investor (89% of total crossings for the week) who has been reallocating his portfolio over the last two weeks. Daily market turnover consequently hit a 6-day high of Rs.1.6Bn on Tuesday, helping push the weekly average turnover level to Rs.0.52bn (cf. Rs.0.89Bn last week). Markets in the week ahead are likely to seek direction from ongoing political and economic developments.

LKR Gains 3.7% YTD Amid ISB Issuances

LKR Gains 3.7% YTD Amid ISB Issuances

Performance of the LKR in the aftermath of the Easter Sunday attacks has been mixed, with the LKR depreciating notably in May’19 but stabilizing somewhat in in Jun’19. In sharp contrast to the 5.0% appreciation it experienced against the USD at the start of the year and prior to the Easter Sunday attacks, the LKR depreciated ~0.4% in May’19 in the aftermath of the terrorist attacks and the subsequent communal tensions.

However, the LKR remained largely stable against the dollar in June, depreciating by ~0.01% (cf. to a depreciation of ~1.6% in June’18) as inflows from the issuance of two new International Sovereign Bonds totaling $2.0Bn this week helped offset some pressure from importer dollar demand. This week’s ISB issue is the country’s 2nd transaction in international bond markets this year, and were priced 25Bps lower than the initial guidance of 6.60% (for 5-year tranche) and 7.80% (10 year tranche).

The issuances were over-subscribed by over 3x as foreign investor flows to emerging and frontier markets have begun to increase amid expectations of a dovish US Fed and an anticipated rate cut at the next Fed meeting in July. Compared to the CBSL’s previous ISB issuance in Mar’19 therefore, yields on the latest issuances were lower, with the 5-year tranche priced at 6.35% (cf. 6.85% on the Mar’19 5-year tranche) and the 10-year tranche priced at 7.55% (cf. 7.85% on the Mar’19 10-year tranche).

Inflows from the ISB issuances in Mar19 and Jun’19 have helped stabilize the LKR, and so far this year, the rupee has appreciated 3.7% against the dollar, compared to a depreciation of 16.4% in 2018. National inflation levels in May meanwhile eased marginally over the month, dropping to 3.5% Y-o-Y (from 3.6% Y-o-Y in Apr’19) amid a higher base effect due to the fuel price hike in May’18.

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