First Capital increases equity exposure as global funds reversing towards Asia

Dec 28, 2018 (LBO) – First Capital Research has upgraded its equity exposure to 60 percent with the belief that the events that have unfolded globally may benefit Sri Lanka and the equity market over the next few months positively impacting earnings and possibly leading to net foreign inflows. Over the last 3 months, they have maintained exposure at 50 percent considering earnings hit via depreciation and political unrest affecting the sentiment of the market. During the period, however, the market gained by about 100-120 index points. “As we step into 2019, we are witnessing the global fund flow reversing towards Asia and commodity prices crashing with the dip in oil prices benefiting the BoP position of Sri Lanka and positively affecting the cost of living,” the firm said. First Capital Research has also upgraded ASPI volatility expectations to 6,000-6,500 (from previous 5,800 – 6,200), assuming Market PER to be 8.

5x – 9.5x. The firm, however, expects the divergent views between the President and UNF government to continue to affect key policy decisions within the cabinet throughout 2019, up until the Presidential elections due in Jan 2020. Global growth is expected to slow down during 2019 primarily led by the possible impacts arising out of the trade war between the US and China coupled with the downgrade in growth expected in the US economy.

"The slowdown in the US economy is likely to result in decelerating the Federal Reserve’s interest rate normalization process which may provide some breathing space for weaker Asian economies.“ First Capital Research further said that global fund flow has already started to reverse towards Asia and emerging markets providing a reasonable level of stability to Asian and other emerging markets.