Foreign investors continue snapping up Sri Lanka’s bonds while dumping stocks

February 16, 2019 (LBO) - Foreign institutional investors continued buying Sri Lanka's government bonds this week, continuing a one month trend where they have been net buyers of over US$100mn worth of bonds in total. Last week, foreign investors bought a net of close to Rs3.5bn (US$20mn) worth of Sri Lanka's bonds, turning net inflow positive for the year 2019. Annual flows have finally turned positive after an approximately USbn string of net outflows.
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Outflows were initially triggered by tight US Federal Reserve policy and exacerbated by Sri Lanka's internal political/constitutional crisis. With the crisis resolved, and Fed policy stance moderating, flows have reversed helping to cause stabilisation in Sri Lanka's currency. The Sri Lankan Rupee (LKR) is hovering 2-3% above all an all time low of Rs183 to the dollar, and showing signs of stabilisation.
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Sri Lanka's stocks, however, are still being punished by outflows. Net outflows were approximately US$10mn in the previous week and near US$30mn for the year to date. Outflows have been primarily been driven by foreign institutional selling of Sri Lanka's leading blue chip company John Keells Holdings (JKH). The market indices have remained stable as these outflows have been absorbed by local high net worth investors who harbour takeover ambitions with regard to JKH.

Foreign investors increased their net holdings in #Srilanka Debt securities (Government securities) for the fourth consecutive week and YTD net foreign investment in Gov Securities became positive for the first time in 2019 (LKR 1.4Bn). pic.twitter.com/pAEgj9LSSf

— Sanjeewa Dayarathne (@DayarathneSa) February 15, 2019