- We forecast ASPI to reach 7,400-7,600 in 2021, with local investors continuing to carry the mantle
- Emerging markets may be ready for prime time in 2021; Sri Lanka will see latent flows compared with peers due to risks
- Sector Pick: We see the strongest potential in the Consumer and Manufacturing sectors for 2021
The Colombo All Share Price Index (ASPI) has recovered all its losses since bottoming out in May (+56.7 since May, +8.6% YTD). A Manufacturing drive led the gains; opportunities remain in large caps that are yet to pick up.
Negative interest rates are the key catalyst; equities will remain the preferred asset class in 2021 amid the low interest rate environment.
We forecast ASPI to reach 7,400-7,600 in 2021, with local investors continuing to carry the mantle.
Global investors will look to rebalance portfolios towards Emerging Markets amid weaker USD, a stronger EM economic recovery due to better management of the pandemic and cheap valuations.
However, macro concerns, specifically around the foreign debt repayment outlook (as shown in recent rating agency actions) may see latent fund flows into Sri Lanka.
Risk-on sentiment with vaccine deployment and the global recovery will favour equities in 2021; however, local management of the vaccine deployment will be critical in mitigating related risks to the equity market.
Sector Pick: We see the strongest potential in the Consumer and Manufacturing sectors in 2021.
We recommend rotation towards 'Covid recovery' beneficiary stocks. Our key picks for 2021 (for Tellimer Insights Pro subscribers) are weighted towards the consumer sector and also cyclical stocks that look attractive on a path to recovery.
We also include three banks in our key picks given the extremely weak valuations which discount the medium-term pick up (with the economy gradually improving).
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