CSE net foreign outflow over Rs. 27 b in 2018; complete reversal from 2017

By Madhusha Thavapalakumar

The Colombo Stock Exchange (CSE) has recorded a net foreign outflow of Rs. 27.50 billion this year up to 28 December, 2018 (Year to Date), a dramatic reversal from the net foreign inflow of Rs. 17.65 billion it recorded in 2017.
According to CSE data, more than 62% or Rs. 17.1 billion of the net foreign outflows this year have been reported in 4Q of 2018, with the political crisis driving away investors. In fact, over Rs. 14 billion of the year’s net foreign outflows have been recorded in the nine weeks since 26 October when the political crisis began, which is a staggering figure of over 50%.

Net foreign outflows amounted to Rs. 2.62 billion in 1Q of 2018, before dropping to Rs. 1.62 billion in 2Q and rising sharply to Rs. 6.14 billion in 3Q.

A senior stock market analyst opined that both 2017 and 2018 are outliers and that Sri Lanka benefitted immensely from the upgrading of Pakistan as opposed to it being suddenly fundamentally superior.

“We saw a dramatic increase last year because Pakistan got an upgrade from frontier to emerging market status. There are quite a few international investment funds that have pocket funds dedicated to frontier markets. So lots of them who have invested money in Pakistan and who had a strictly defined frontier pocket had to invest in other countries that are frontier. It was a technically easier decision for them to move that money into Bangladesh and India in that region and we got a part of that spillover. So that makes 2017 an outlier.”

He added that the political uncertainty and instability that littered 2018 tied to the global reallocation of investments from emerging markets to safe havens makes this year an anomaly too. Another senior market analyst added that the massive outflows were not surprising considering the issues Sri Lanka has faced throughout 2018.

“The unexpected provincial council election results in February, the No-confidence Motion against the Prime Minister, the anti-Muslim riots in Kandy and the state of emergency that followed, and finally the crisis – all of these things affected foreign investor confidence. To make matters worse, GDP growth came in very low throughout the year.”

The CSE recorded a net foreign inflow of Rs. 384 million in 2016, a net foreign outflow of Rs. 5.37 billion in 2015 and an impressive net foreign inflow of Rs. 21.14 billion in 2014.