As Foreign investor holdings have increased their LKR-denominated Government securities to about Rs 200 b, amidst consecutive weeks of net foreign inflows – it should not be mistaken for renewed confidence in equities, but an early sign of confidence, LOLC Securities Head of Research Ruvini Kaushalya said on Monday (14), during a webinar hosted by the stockbroking form.
“If we look at the weekly numbers, foreign investors have been steadily increasing their holdings of rupee denominated Government securities. You can see the foreign holdings have moved to about Rs 200 b levels,” Kaushalya said.
According to the latest (11) published data from the Central Bank of Sri Lanka, total foreign investor holdings in LKR-denominated Government securities stood at approximately Rs 213.4 billion (b), or $ 280 million in cumulative net buying over 13 consecutive weeks.
“And we have seen a number of consecutive weeks of net foreign inflows. I want to make one important distinction here. This does not mean that foreign investors have already returned to Sri Lankan equities. Foreign equity flows remain relatively weak, so we should not over interpret this. But I see the Government securities inflows as a more important confidence signal.”
Between early to mid-September, the Colombo Stock Exchange experienced mixed, mostly subdued foreign equity activity; with light buying on select sessions.
Kaushalya said the sustained buying of Government securities could indicate growing foreign investor comfort with Sri Lanka’s sovereign risk and macroeconomic stability, while cautioning that this should be viewed as an early signal rather than confirmation of a broader return of foreign capital to the equity market.
“For me, this is an early sign rather than the final confirmation. This is kind of an early sign that the foreign investors are attracted to Government securities. So eventually, they will move into other asset classes such as equities as well.”
Reiterating the sentiment held by the Securities and Exchange Commission of Sri Lanka (SEC), she added that falling bond yields alone are insufficient to sustain a long-term recovery in the Sri Lankan capital market.
The commission noted that while lower yields naturally drive local liquidity out of fixed-income assets and into equities; structural depth, policy consistency, and robust regulatory environments are critical.