Forex loss of Rs. 93 b from stocks, bonds

By Madhusha Thavapalakumar

Sri Lanka lost a staggering Rs. 93 billion in foreign exchange this year up to 21 May, due to foreign investors pulling out of the country’s government securities and stocks, according to the latest available data.

Out of this Rs. 93 billion, Rs. 81.4 billion is net outflow from Treasury bills and bonds, as the Central Bank of Sri Lanka’s indicators revealed, while the rest was outflow from the Colombo Stock Exchange (CSE).

The net outflow during this period is substantially higher than the Rs. 72 billion in overall net foreign outflow reported from 1 January to 20 December 2019, during which period the Easter Sunday incident shook the country’s economy.

However, this year’s massive foreign outflow is not unique to the Sri Lankan economy and has been mainly due to the Covid-19 global pandemic. The impact of the pandemic started being felt in the Sri Lankan market at the peak of the outbreak in Wuhan, China. Nevertheless, this intensified following the identification of the first Covid-19-positive Sri Lankan in early March and had a tremendous impact on the CSE’s first quarter performance.

During the first quarter of this year, foreign companies’ inflow into the CSE was Rs. 30 billion while their outflow was Rs. 35 billion. Meanwhile, inflow from foreign individuals during this period was Rs. 416 million and outflow was Rs. 179 million. Overall, the first quarter reported net foreign outflow of Rs. 5.42 billion.

However, the CSE was closed for trading in the last two weeks of March, after the S&P SL20 Index, which includes the 20 largest companies by total market capitalisation listed on the CSE, dropped by 5% several times, triggering 30-minute halts in regular trading during the week that began on 16 March.

The following week, it remained closed for four days with the Government declaring holidays. It was opened on 20 March, only to close shortly after opening. Since then, the CSE remained closed until 11 May, effectively not recording any flows into or out of the CSE.

Before opening for trading on 11 May, the CSE installed a new system under which the market would automatically close for the day if the S&P SL20 Index dropped by 10% or more. The week from 11 May to 15 May comprised a number of trading halts, and Rs. 1.5 billion in foreign inflow was reported during the week while Rs. 5 billion in outflow was reported in the same period. Overall, Rs. 3. 5 billion in net foreign outflow was reported during this week.  

Meanwhile, last Monday (18), foreigners bought stocks worth Rs. 57.8 million while they sold stocks worth Rs. 399.8 million, and this resulted in a net foreign outflow of Rs. 342 million for that day.

The following day (19), stocks worth Rs. 76.3 million were purchased by foreigners while stocks sold by them amounted to Rs. 545.6 million, over Rs. 140 million higher than the previous day. Total net foreign outflow for the day was Rs. 469.3 million.

Outflow increased gradually on Wednesday (20) as foreign outflow was Rs. 776 million while foreign inflow was just Rs. 129 million, marking net foreign outflow of that day at Rs. 647 million.

On Thursday (21), a massive amount of foreign outflow was reported as foreigners sold stocks worth Rs. 1.37 billion while they purchased stocks worth only Rs. 120.2 million, less than the previous day. This contributed to about Rs. 1.2 billion in net foreign outflow reported so far this year.  

While the CSE bled about Rs. 11.64 billion this way, Treasury bills and bonds held by foreigners depleted at a rate higher than that of the time of the infamous October crisis in 2018. As of end-December 2019, Treasury bills and bonds held by foreigners were Rs. 104.6 billion and that dropped by double digits to Rs. 23.2 billion by 15 May.

Foreigners pulled out a whopping Rs. 28.12 billion worth of investments in Treasury bills and bonds in the first three weeks of March alone, which amounted to over 67% of the total net foreign outflow reported since 1 January to 20 March this year, which was Rs. 41.55 billion.

Nevertheless, following the local Covid-19 outbreak, outflow from Sri Lankan securities intensified as the same amount of net foreign outflow reported from Treasury bills and bonds during the first three months of this year were reported within a one-and-a-half month period from end-March to early May.

However, this trend too was not limited to Sri Lanka’s security market as most Asian markets which were considered safe haven markets of Asia are still suffering considerable outflows from their respective Government securities market in the wake of the pandemic.