Sri Lanka’s Colombo Stock Exchange(CSE), one of the world’s best performing stock markets with over 80% returns last year, has turned into the world’s worst after Russian Equities, falling 33% so far this year.
The All Share Price Index(ASPI) of the CSE dropped amidst surging nationwide protests against soaring protests and inflation. Matters worsened as the Central Bank Governor announced his resignation on Monday. During last week, several trading suspensions were triggered due to market losses.
Sri Lankan shares are leading the reversal in a broader gauge of Asia’s frontier market equities after 2021. Due to quickening price pressures and political tumult, MCSI Frontier Asia Index just reported its worst quarter in 2 years.As inflation soars, “investors have taken a risk-off approach to investments amidst heightened uncertainty, where capital preservation has become priority,” said Naveed Majeed, senior vice president of research at Asia Securities Pvt. “We expect corporate earnings to moderate from March onwards.”Market sentiment in Sri Lanka continues to be negative even as the government seeks IMF bailout to tackle increasing living costs and a forex reserve crisis. Making matters worse, the Sri Lankan Rupee ended up being the world’s worst-performing currency this year, as foreign funds worth a net $11 million were withdrawn from Sri Lankan shares, according to Bloomberg reports.“I would not be surprised by a steep hike in interest rates above 100 basis points” at the Central Bank of Sri Lanka’s next meeting, said Ruchir Desai, fund manager at Asia Frontier Capital Ltd.
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