Net foreign outflow from stocks, bonds passes Rs. 100 b

Sri Lanka has lost over Rs. 100 billion in foreign exchange in 2020 even before the end of the first half of this year, due to foreign investors pulling out of the country’s government securities and stocks, according to the latest available data.

According to data, Sri Lanka reported a whopping net foreign outflow of Rs. 101.4 billion from 1 January up to the third week of June this year. Out of this Rs. 101.4 billion, Rs. 83 billion is net outflow from Treasury bills and bonds, as the Central Bank of Sri Lanka (CBSL)’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-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 its 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 saw 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 particular week.  

Meanwhile, at the end of the second week after reopening, foreigners bought stocks worth Rs. 1.6 billion, an improvement compared to the first week, while they sold stocks worth Rs. 1.5 billion compared to Rs. 5 billion the previous week. 

During the third week after the reopening of the CSE, foreign purchases witnessed a drop compared to the week prior, as it was reported at Rs. 593.1 million, while shares sold by foreigners hiked to Rs. 3.9 billion that same week. 

The following week, the first week of June, foreign purchases recovered to Rs. 1.2 billion while stocks sold by foreigners were valued at Rs. 1.5 billion. At the end of the second and third weeks of June, foreigners bought stocks worth Rs. 1.1 billion and Rs. 704.6 billion, respectively, while shares sold by them amounted to Rs. 4 billion and Rs. 3.3 billion, respectively. 

While the CSE bled about Rs. 18.41 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 it has lost Rs. 83 billion so far. 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. 21.6 billion by the end of the third week of June.

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.

During the curfew period from 20 March to 11 May Rs. 39.9 billion in net foreign outflow was reported from Treasury bills and bonds held by foreigners. Nevertheless, this trend eased as since the reopening of Colombo on 11 May up to the third week of June, net foreign outflows from Treasury bills and bonds were just Rs. 1.6 billion; as at the end of the third week in June, Treasury bills and bonds held by foreigners amounted to Rs. 21.6 billion.

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