Prevailing political uncertainty affects investor confidence: First Capital Research

July 11, 2018 (LBO) – Prevailing policy uncertainty created through the political uncertainty is a major deterrent which may slow down the gradual improvement of the economy and business confidence, a recent research showed. First Capital Research in its mid-year economic outlook said a major factor that is creating uncertainty in the upcoming Presidential Election in late 2019. “None of the 3 major political parties have announced a clear candidate who would be contesting for the upcoming elections,” the report highlighted.

“It is a major deterrent for any investor. It is an important step in forecasting possible policy direction for the future in order to assess the risk for long-term investments.” Following the local government elections, all eyes are now on the Provincial Councils which are in the process of expiring. Sabaragamuwa, North Central, and Eastern PCs expired in 2017. Central, North Western, and Northern PCs terms will expire in October. Southern, Western and Uva PCs terms will expire on April and October in 2019. With the new electoral system to be finalized for PCs, Elections Commissioner has not called for nominations as yet. “A further defeat for the present Government may worsen the prevailing political uncertainty,” the report said. “But an improvement in the voter base may provide some respite.” The unexpected local polls victory by the opposition resulted in an early surge in yields across the yield curve in March 2018 with a low level of investor confidence. Following the 2.5 billion dollars sovereign bond, some stability was seen during April 2018 even though business confidence dropped to a 70-month low in April 2018. Contrary to the prevailing uptrend in yields, compared to other tenors, the shorter tenors registered a continuous dip in yields with investors expecting a further rise in the overall yield curve. First Capital Research, however, said with stable interest rates and low inflation, they expect the stability of the economy to further improve during 2018.

“The stable environment is expected to slowly improve business confidence and consumer demand towards 2H2018,” the report added. “We believe business confidence and consumer demand are currently below average and they are expected to normalize during the period.”