Sri Lanka Stock Market Themes to Monitor for 2018-2019

Sri Lanka in 2018-2019: Improved Macroeconomic Picture to Support Discounted Stock Market

Frontier and emerging markets (Vietnam)

Dylan Waller

Thematic (Sector/Industry)

This insight covers the risks and improvements of the Sri Lankan economy, focusing on Q2 performance, as well as historical economic indicators.  Some key highlights are as follows:
1) Inflation has stabilised in the mid single digits, remaining close to the IMF’s target of 5%.
2) Sri Lanka's twin deficits have been improving ( supported by fiscal consolidation efforts, growth in exports/tourism, etc.), though new measures will strain certain sectors of the stock market.
3) Foreign exchange reserves have been growing some this year, after declining in 2016 and 2017, and remain at a relatively attractive level.
4) The Sri Lankan economy grew by 3.7% during Q2 2018, which was the highest growth experienced since Q4 2016.  Notably, the agriculture sector recovered after contracting in 2017, and the services sector grew the fastest ( led by telecommunications and financial services).
5) Total export revenue during 6M 2018 rose by 6.2% YoY, led by the strong performance of textile and garment exports to the EU, US, and other markets.
6) The current stock market discount is somewhat attractive, and makes it worthwhile to consider certain stocks/sectors for investment ( will cover this more in future insights).  However, fiscal consolidation efforts and the relative slowdown in the economy makes it crucial to be picky and find attractive bottom up names.

This insight covers the risks and improvements of the Sri Lankan economy, focusing on Q2 performance, as well as historical economic indicators.  Some key highlights are as follows:
1) Inflation has stabilised in the mid single digits, remaining close to the IMF’s target of 5%.
2) Sri Lanka's twin deficits have been improving ( supported by fiscal consolidation efforts, growth in exports/tourism, etc.), though new measures will strain certain sectors of the stock market.
3) Foreign exchange reserves have been growing some this year, after declining in 2016 and 2017, and remain at a relatively attractive level.
4) The Sri Lankan economy grew by 3.7% during Q2 2018, which was the highest growth experienced since Q4 2016.  Notably, the agriculture sector recovered after contracting in 2017, and the services sector grew the fastest ( led by telecommunications and financial services).
5) Total export revenue during 6M 2018 rose by 6.2% YoY, led by the strong performance of textile and garment exports to the EU, US, and other markets.
6) The current stock market discount is somewhat attractive, and makes it worthwhile to consider certain stocks/sectors for investment ( will cover this more in future insights).  However, fiscal consolidation efforts and the relative slowdown in the economy makes it crucial to be picky and find attractive bottom up names.

Sri Lanka Economic Update: IMF Led Economic Reforms Continue/Growth Is Still Lagging Behind 4%