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Bourse’s 2nd Highest Outflow Portends Exit Of Foreign Funds

  • Market Records Lowest, Second Lowest Turnovers

The Colombo Stock Market recorded its second highest net foreign outflow (NFO) figure for the year to date at Wednesday’s (June 26) trading, perhaps signalling the fact that the foreign funds’ exit from the local equities market has begun.

Matters were seemingly compounded by the fact that the bourse last week had the dubious distinction of recording its lowest and second lowest turnovers respectively for the year to date. While on Monday (June 24) it recorded its lowest turnover for the year to date by returning a sum of Rs. 200.98 million as that day’s turnover, on Friday this figure was dubiously complemented by recording the year’s second lowest turnover to date, with a figure of Rs. 265.9 million. The fact that trading was delayed by three hours on Friday may not have had helped alleviate the situation.

Meanwhile on Wednesday the market experienced a NFO of Rs. 636.81 million, its second highest NFO figure to date, led by a foreign fund exiting from blue chip JKH at a discounted price of Rs. 247 a share, where the buyer was the captain family, market sources told this newspaper. It comprised the sale of some three million shares of JKH, they said.

Highest NFO

The highest NFO for the year to date recorded by the bourse was on January 30, when it suffered a NFO of Rs. 1.4 billion.
On the following day Thursday, NFO recorded was Rs. 496.61 million on a Rs. 1.3 billion turnover. The money may have gone back to the USA, the sources said.

On Friday however the bourse recorded a net foreign inflow (NFI) of Rs. 98.47 million, but a far cry when compared to triple and quadruple of that figure of NFIs received by the bourse at the beginning of the month.

Sources further alleged that some of the so called NFIs recorded may be spurious, meaning that those monies were allegedly from locals holding offshore accounts. JKH on Wednesday opened at Rs. 256 and went down to Rs. 250 due to alleged manipulation before Wednesday’s deal was struck at Rs. 247, the sources said. JKH closed the day at Rs. 249.

With Federal Reserve System Chairman, Ben Bernanke at a meeting on June 19 signalling that the Fed.’s quantitative easing (QE) programme may taper off due to the recovery of the US economy, this has seen the repatriation of foreign investments in emerging markets such as Sri Lanka back to the USA, because of the belief that interest rates in the USA will be on the ascent due to the pulling back of QE, which would signify that the days of cheap money in the USA are over.

Foreign funds have been sustaining the bourse thus far this year. Any pull back of those funds will not only affect the market, but also the exchange rate as well. However, the market, since the beginning of the year to date has recorded an NFI of Rs. 15 billion.

Meanwhile the bourse, due to the slump in JKH’s shares, saw the ASPI come down by 0.22% to 6,072.68 points while the S&P SL 20 Index fell by 0.49% to 3,413.63 points on a Rs. 2.3 billion turnover on Friday, though on the following day Thursday the ASPI picked up by 0.64% over its previous day’s close to end the day at 6,111.36; while the S&P SL 20 gained 0.38% to finish Thursday at 3,426.48 points. Friday these indices gained by 0.16% and 0.15% over its previous day’s closings to end the week at 6,121.01 and 3,431.74 respectively.

Lowest Turnover

In other developments, the local bourse recorded its lowest turnover figure for the year to date by returning a sum of Rs. 200.98 million on Monday. The ASPI tumbled 0.10% to close the day at 6,149.38 points while the S&P SL 20 made a pyrrhic gain of 0.17% to 3,472.30 points.

Part of the fall of the bourse has been attributed to the revelation by The Sunday Leader last week of some key players in the Colombo Stock Exchange allegedly operating accounts in offshore tax havens, thereby allegedly making them to keep away from the market.

Integrity, good governance and transparency of the market are needed to gain investor confidence, but when that is diluted, that has a negative effect on the bourse, they said.

The bourse’s decline continued the following day Tuesday, with the ASPI falling by 1.03% over its previous day’s close to 6,086.22 points; while the S&P SL 20 Index fell by 1.21% to 3,430.43 points on a Rs. 455.45 million turnover with a Rs. 38.65 million NFO not helping the situation. – Paneetha Ameresekere

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