Foreigners sell down over Rs. 5 bn in securities and equities in one week

June 30, 2013

Foreign investors have pulled out Treasury bond investments amounting to Rs. 6,017 million last week, accounting for a small fraction of the total foreign holdings, Central Bank data showed, leading to a net outflow of Rs. 4,063 million from the securities market during the week in addition to a Rs. 1 billion outflow from the stock exchange.

Out of total foreign holdings in Treasury bonds amounting to Rs. 424,708 million as at June 19, a small fraction, 1.41 percent or Rs. 6,017 million, was sold down during the week ending June 26 to Rs. 418,691 million.

Of the Rs. 6,017 million that exited the Treasury bond market, Rs. 1,954 million found its way to the shorter term Treasury bill market taking the total foreign holdings in Treasury bills up to Rs. 76,001 million as at June 26, from Rs. 74,047 million as at June 19.

In effect, a net outflow of Rs. 4,063 million was recorded during the week.

Foreign holdings in government securities, both bills and bonds, amounted to Rs. 494,692 million or 13.58 percent of the total outstanding Treasury bills and bonds as at June 26. The Central Bank is hoping to bring this down to the 12.5 percent limit by the end of this year.

Foreign investors bought Rs. 6.67 billion in Treasury bills in the three weeks ended on 19 June, and sold Rs. 5.66 billion worth of Treasury bonds in the same period.

Foreign holdings in Treasury bills rose 9.9 percent during this period to Rs. 74.04 billion and Treasury bond holdings fell 1.3 percent to Rs. 424.7 billion, as foreign investors reacted to news that the US Fed would scale down its quantitative easing programme this year.

Last week, foreign investors unwound their investments in the Colombo Stock Exchange to the tune of Rs. 1,026.62 million. Year-to-date, the exchange had attracted foreign investment amounting to Rs. 15,177.56 million.

According to global banking giant HSBC, the US Fed was likely to begin tapering down its quantitative easing programme by this December but monetary policy easing was not likely to take place until 2015 or after. Cheap funds, seeking emerging market such as Sri Lanka, may not be erased from the system for a long time to come. Also, Japan is planning to rollout a quantitative easing programme of its own which would see its balance sheet double over the next few years.

"Global capital liquidity will still be there. Also, there will always be a growth deferential between the US and Asia. There will always be a yield (interest rate) deferential between the US and Asia," Leif Eskesen, HSBC Global Research Chief Economist for India and ASEAN, addressing a breakfast meeting for top clients of HSBC Sri Lanka in Colombo last Wednesday (26).

He said the global concerns about the US Fed decision would remain until the end of this year, and "the impact of the tapering down US Fed stimulus would not have a significant impact on Sri Lanka", Eskesen said.

The rupee fell sharply in recent weeks after the US Fed announcement after foreign investors began unwinding their securities and equity holdings.

After opening at Rs. 129.60/65 against the US dollar, the rupee slipped further to close at a seven month low of Rs. 130.65/80 last Thursday. The Sri Lankan rupee fell 3.16 percent since June 10.

On Friday, the rupee gained some lost ground closing at Rs. 130.50/60 against the greenback. Currency dealers said banks were selling dollars on Friday because they were in need of rupees to maintain reserves to the Central Bank’s required level.