powerpoint presentation · first capital research 7 foreign reserves declined to usd 7.0bn in...

First Capital Research

Jan 2019

Jan 2019First Capital Research 2

• Sri Lanka looks to resume deal with IMF……………..………………………………………… 3

• Inflation……………………………………………………………………………………………… 4

• M2B & Sector Credit…………………………………………………………………................… 6

• Reserves & Liquidity………………………………………………………………………............ 7

• Currency Movement…………………………………………………………………................... 8

• Government Securities……………………………………………………………….................. 9

• Finance Sector Rate Movement……………………………………………………………..... … 12

• External Sector…………………………………………………………………………………….. 13

• Tourist Arrivals…………………………………………………………………………………….. 17

• Global Markets…………………………………………………………………………………….. 18

Sri Lanka is looking to resume talks with the International Monetary Fund after a three yeardeal was suspended as the central bank failed to meet forex reserve targets and aconstitutional crisis erupted.

Sri Lanka had said it was about to sign the next section of the deal in late October whenPresident de-stabilized the economy further by triggering a constitutional crisis. The IMFsaid it was watching developments. The constitutional crisis ended in December with courtruling against the actions of President.

However the program was already suspended by October, as the central bank failed to meetforex reserve targets in 2018 amid money printing that began around the end of the firstquarter of 2018.

Sri Lanka has gone to the IMF multiple times as the country was hit by balance of paymentscrises due to contradictory policy of the central bank, involving defending a peg andprinting money (sterilized forex sales) since it was set up in 1951.

First Capital Research 3Jan 2019

Source: Reuters

• MoM increase in inflation by0.1% was due to the valueincrease in Food items by0.24% and decrease in NonFood items by 0.22%. Priceincrease in vegetables led theincrease in Food categorywhile value decreasereported in Transport in theNon Food inflation.

• The YoY inflation decreased to2.8% in December 2018 from3.3% reported in Novemberas a result of increase in valueof Food Group.

First Capital Research 4

7.1%

5.8%

4.5%4.2%

3.8%4.0%

4.4%

5.4%

5.9%

4.3%

3.1%3.3%

2.8%

4.3%

3.5% 3.5%3.4%

3.5%3.2%

3.4%

3.9%

3.7%

3.8%

3.8%

3.4%

3.1%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Inflation YoY Core Inflation YoY

Source: Dept. Census and Statistics Jan 2019

• NCPI for November 2018increased to 1.0% from0.1% recorded in October2018.

• YoY inflation of food grouphas increased to +2.2% inNovember 2018 and NonFood group has increasedto 5.8% during the month.

First Capital Research5

8.4%

7.3%

5.4%

3.2%

2.8%

1.6%2.1%

2.5%

3.4%

2.5%

0.9%0.1%

1.0%

2.8% 2.7%

2.1% 2.0% 1.9% 1.9% 1.7% 1.8%

2.3%

2.7%

3.1%3.4%

3.1%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

NCPI YoY Core NCPI YoY

Source: Dept. Census and StatisticsJan 2019

M2b Growth – November 2018MoM +0.78%, YoY +13.89%, YTD +11.64%


Private sector credit for the month of November 2018 amounted to LKR 79.3Bn, thereby, overall credit growth

(state & private) increased to LKR 135.2Bn, +29%YoY. Government credit reflected a net borrowing for the

fourth consecutive month amounting to LKR 56.0Bn.

State Credit & Private Credit – November 2018 Private credit MoM +1.5%, YoY +15.69%, YTD +14.25%

-50

4067

42 4468

29

-40 -29

48

172

40 5662

60 20 58

122

22

29 8347

46

107

7479

-100.00

-50.00

0.00

50.00

100.00

150.00

200.00

250.00

300.00

LK

R '

Bn

State Credit Private Credit Source: CBSL

0.40%

2.01%

1.11%

1.13%

2.42%

1.29%

-0.31%

1.15%

0.71%1.05%0.98%

0.79%0.78%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

5,600

5,800

6,000

6,200

6,400

6,600

6,800

7,000

7,200

M2b MoM Growth

Source: CBSL

LKR

Jan 2019


Foreign Reserves declined to USD 7.0Bn inNovember 2018 (from USD 7.9Bn in October2018).

Market liquidity showed a continuousdeclining trend for the month of Decemberrecording the lowest liquidity YTD.

-100.00

-80.00

-60.00

-40.00

-20.00

0.00

20.00

40.00

60.00

80.00

Ms

rke

t L

iqu

idit

y (

LK

R '

Bn

)

Source: CBSL

7,3

19 7

,95

9

7,6

73

7,9

14

7,3

09

9,9

27

8,7

69 9,2

47

8,4

39

8,5

91

7,1

64

7,9

00

7,0

18

3,500

4,500

5,500

6,500

7,500

8,500

9,500

10,500USD 'Mn

Gross Official Reserves (USD mn) Source: CBSL

Jan 2019

USD:LKR Movement Sri Lankan Rupee vs Global Currencies


Source: CBSLD

ec

em

be

r 2

01

8Y

TD

20

18

178.00

179.00

180.00

181.00

182.00

183.00

Source: CBSL

2.0%

0.9%

-1.0%

-1.5%

-1.7%

-2.1%

-2.7%

-4.4%

-8.00% -6.00% -4.00% -2.00% 0.00% 2.00% 4.00%

Can Dollar

Japan YEN

US Dollar

China Renmiibi

Euro

UK Pound

Aus Dollar

India Rupee

-7.9%

-10.3%

-10.4%

-11.2%

-11.7%

-12.2%

-16.9%

-17.5%

-20.0% -15.0% -10.0% -5.0% 0.0%

India Rupee

China Renmiibi

Aus Dollar

Can Dollar

UK Pound

Euro

Japan YEN

US Dollar

Jan 2019


Week EndingBills

('Mn)

Bonds

('Mn)Total

07-Dec-18 19,000 19,000

14-Dec-18 23,000 50,000 73,000

21-Dec-18 18,000 18,000

Total Issued 110,000

December 2018 YTD

Maturities 64,045 1,588,542

New Issues 110,000 1,541,755

Excess/(Deficit) -45,955

CBSL Holdings of Gov. Securities YTD

As at End Dec.2018 45,800

As at End Nov. 2018 67,318

Increase/ (Decrease) 21,518 20,302

Jan 2019


-200

-150

-100

-50

0

50

100

Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18

Excess Liquidity CBSL Holdings of Gov. Securities Source: CBSL

Jan 2019


Beginning of the month the secondary market witnessed to be at a complete standstill due to the long pending Supreme

Court decision on the grounds of uncertainty witnessed on the political front for near 2 months. Thereafter, the yield

curve was seen shifting slightly downwards in line with buying interest seen on short, mid and long tenure maturities; the

short to mid tenures dipped by 15-20bps while long tenures dipped by 22bps-30bps.

8.00%

8.50%

9.00%

9.50%

10.00%

10.50%

11.00%

11.50%

12.00%

12.50%

13.00%

30-Nov 31-Dec 30-Sep

Jan 2019

Interest Rate Change (bps)

Tenure 30-Nov 31-Dec Change (bps) 30-Sep Change (bps)

3M 9.93% 9.80% -13 8.63% 117

6M 10.48% 9.90% -58 9.15% 75

1 Yr 11.08% 10.95% -13 9.63% 132

2 Yrs 11.28% 11.23% -5 10.13% 110

3 Yrs 11.70% 11.53% -17 10.85% 68

4 Yrs 11.75% 11.60% -15 10.95% 65

5 Yrs 11.80% 11.70% -10 11.08% 62

6 Yrs 11.88% 11.70% -18 11.13% 57

7 Yrs 12.00% 11.80% -20 11.15% 65

8 Yrs 12.10% 11.80% -30 11.15% 65

10 Yrs 12.23% 11.95% -28 11.15% 80

12 Yrs 12.30% 12.08% -22 11.20% 88

15 Yrs 12.35% 12.10% -25 11.25% 85

20 Yrs 12.40% 12.13% -27 11.30% 83

AWPR vs AWDR Interest Spread


Source: CBSL Source: CBSL

Source: CBSL

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Interest Rate Spread

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

AWPR vs AWDR

AWPR AWDR

Jan 2019


Exports for the month of Oct was recorded at USD 979Mn,+0.4%YoY basis, mainly contributed

by Industrial Exports (+4.5%YoY) which was largely driven by Petroleum products

(+67.5%YoY). Meanwhile, earnings from agricultural exports declined in Oct 2018 as well due

to weakened earnings in tea, spices and coconut.

Category 2017

(USD ‘Mn)

2018

(USD ‘Mn)

Change

(%)

Industrial Exports

- Oct

- YTD

725.0

7,032.1

757.4

7,657.0

4.5

8.9

Agricultural

- Oct

- YTD

245.6

2,323.4

217.3

2,175.0

(11.5)

(6.4)

Mineral and other

- Oct

- YTD

4.9

44.5

4.4

44.7

(9.2)

0.4

Total

- Oct

- YTD

975.6

9,400.0

979.1

9,876.7

0.4

5.1

86

5

86

8

1,0

42

79

5

84

1

98

7

1,0

16

1,0

01

1,0

11

97

6

94

1

1,0

20

96

5

91

6

1,1

08

79

5

92

4

1,0

24 1

,07

3

1,0

37

1,0

55

97

9

700

750

800

850

900

950

1,000

1,050

1,100

1,150

USD 'Mn

2017 2018 Source: CBSL

Jan 2019


Category 2017

(USD ‘Mn)

2018

(USD ‘Mn)

Change

(%)

Consumer goods

- Oct

- YTD

382.2

3,661.2

438.5

4,259.1

14.7

16.3

Intermediate

- Oct

- YTD

948.4

9,169.6

1,017.5

10,430.3

7.3

13.7

Investment goods

- Oct

- YTD

392.5

4,016.2

425.7

3,970.4

8.5

(1.1)

Total

- Oct

- YTD

1,727.2

16,990.9

1,882.5

18,733.5

9.0

10.3

1,7

98

1,6

11

1,8

69

1,6

04

1,7

25

1,5

41

1,5

91

1,8

57

1,6

67

1,7

27

1,9

40 2

,04

8

2,0

14

1,9

78

1,9

79

1,7

94

1,8

57

1,8

20

1,7

55

1,8

87

1,7

68

1,8

83

1,200

1,300

1,400

1,500

1,600

1,700

1,800

1,900

2,000

2,100

2017 2018 Source: CBSL

USD 'Mn

Jan 2019

Import expenses increased in Oct 2018 by +9.0%YoY. This was contributed by consumer goods

(+14.7%YoY) mainly driven by increased expenditure on Non-food consumer goods

(+36.0%YoY) amidst a notable increase in personal vehicles by +193.2%YoY. Both, intermediate

goods and investment goods were seen improving by +7.3%YoY and +8.5%YoY respectively.


-752

-1,000

-1,028

-1,049

-1,062

-871

-999

-933

-795

-681

-850

-713

-903

-1,200 -1,000 -800 -600 -400 -200 0

Balance of Trade

Source: Central Bank

Jan 2019

MARGINALLY DECLINES MOM

Nov

Trade Balance -13.2%

First Capital Research16

Oct

USD ‘Mn2017 2018

Change

(%)

Trade Balance -752.0 -903.0

Earnings from

Tourism283.0 284.0 +0.5

Workers’

Remittances546.0 599.0 +9.7

YTD

USD ‘Mn2017 2018

Change

(%)

Trade Balance -7,591.0 -8,857.0

Earnings from

Tourism3,161.0 3,496.0 +10.6%

Workers’

Remittances5,904.0 5,876.0 -0.5%

Worker Remittances improved to USD 599Mn (+9.7%YoY). Earnings from

tourism recorded a marginal increase for the month of Oct reflecting an YoY

increase of +0.5%.

BoP for Jan-Oct 18 was USD -157Mn thereby it has relatively improved

compared to the previous YTD of Jan-Sep amount of USD -650Mn, illustrating

an inflow of USD 493Mn for the month of October.U

SD

'B

n

1,991

-157

-500

0

500

1,000

1,500

2,000

2,500

Jan-Oct 17 Jan-Oct 18

-7,591-8,857

3,161 3,496

5,904 5,876

-10,000

-5,000

0

5,000

10,000

15,000

Jan-Oct 17 Jan-Oct 18

Trade Balance Earnings from Tourism Workers’ Remittances

US

D '

Bn

Total = 9,065 Total = 9,372

Jan 2019

UP 3.5% UP 10.3%


Tourist arrivals into SL grew by 3.5% in December 2018 compared to an year ago. Arrivals were mainly

dominated by India followed by United Kingdom and China. YoY tourist arrivals from Germany

increased by 37.1% while arrivals from Maldives and China were down by 9.1% and 4.9% respectively.

20

40

60

80

100

120

140

160

180

200

220

240

260

280

'00

0

Tourist Arrivals

2016 2017 2018Source: SLTDA

Jan 2019


Stocks Gain as Powell, China Policy Soothe Nerves: Stocks across

Asia kicked off the week with strong gains after soothing Federal

Reserve comments and an easing of monetary policy in China stoked a

renewed appetite for risk assets. The dollar fell to the lowest in more

than two months against peers. Shares in Japan led the charge, with

advances also in Hong Kong, South Korea and Australia. U.S. futures

climbed, signaling Friday’s rally in U.S. stocks could continue, and

European futures also rose. Federal Reserve Chairman Jerome Powell

said policy is flexible and officials are “listening carefully” to financial

markets, while the People’s Bank of China cut the required reserves for

banks. www.bloomberg.com

JP Morgan says China hasn't done enough to stimulate its

economy: China needs "a little more aggressive easing" than what the

government has done so far to stimulate its slowing economy, said

Hannah Anderson, global market strategist at J.P. Morgan Asset

Management. Her comments came after the Chinese central bank

announced last Friday it will cut the amount of reserves banks are

required to hold by 1 percentage point this month.www.cnbc.com

Stocks ride relief rally, Sino-U.S. trade a hurdle: Asian shares sped

ahead on Monday as a dovish turn by the Federal Reserve and

startlingly strong U.S. jobs data soothed some of the market’s worst

fears about the global outlook. Chinese stocks firmed after the

country’s central bank announced an easing in policy on Friday, with

100 basis points of cuts to bank reserve requirements freeing up

around $116 billion for new lending.www.reuters.com

Source: Bloomberg

-10.00% -8.00% -6.00% -4.00% -2.00% 0.00% 2.00% 4.00% 6.00%

Nikkei 225

Dow Jones

KSE100

Euro Stoxx 50

VN Index

FTSE 100

Nifty

Jan 2019

This Review is prepared and issued by First Capital Holdings PLC. based on informationin the public domain, internally developed and other sources, believed to be correct.Although all reasonable care has been taken to ensure the contents of the review areaccurate, First Capital Holdings PLC and/or its Directors, employees, are not responsiblefor the correctness, usefulness, reliability of same. First Capital Holdings PLC may act asa Broker in the investments which are the subject of this document or relatedinvestments and may have acted on or used the information contained in this document,or the research or analysis on which it is based, before its publication. First CapitalHoldings PLC and/or its principal, their respective Directors, or Employees may alsohave a position or be otherwise interested in the investments referred to in thisdocument. This is not an offer to sell or buy the investments referred to in this document.This Review may contain data which are inaccurate and unreliable. You hereby waiveirrevocably any rights or remedies in law or equity you have or may have against FirstCapital Holdings PLC with respect to the Review and agree to indemnify and hold FirstCapital Holdings PLC and/or its principal, their respective directors andemployees harmless to the fullest extent allowed by law regarding all matters related toyour use of this Review. No part of this document may be reproduced, distributed orpublished in whole or in part by any means to any other person for any purpose withoutprior permission.

19First Capital Research Jan 2019

CONTACT

First Capital Research +94 11 2639 898

• Hiruni Perera +94 11 2639 864

• Nisansala Kuruppumudali +94 11 2639 866

• Dimantha Mathew +94 11 2639 853

• Atchuthan Srirangan +94 11 2639 863

• Amanda Lokugamage +94 11 2639 868

20First Capital Research Jan 2019

powerpoint presentation · first capital research 7 foreign reserves declined to usd 7.0bn in...

Documents