Strategy Note /
Sri Lanka

Sri Lanka: Equity Strategy 2020 – Shot Selection Critical for the Big Innings

    Contributors
    Isuri Munasinghe
    Mangalee Goonetilleke
    Naveed Majeed
    Lakshini Fernando
    Asia Securities
    13 December 2019
    Published byAsia Securities

    Equities are back with a vengeance. With the important presidential election behind us, and President Gotabaya Rajapaksa gaining a convincing majority, the political uncertainty which plagued the markets for a better part of 2018 and 2019 has been receding. Local investors who have a close ear to the ground have started to take positions and benefited from the pickup in momentum. Against this backdrop, while investors should be nimble to take on the value opportunities, we also advise picking more resilient stocks with a >12 month investment horizon. We give our top picks on p11, and for detailed analysis of these stocks, see p76.

    • ASPI Gains in 2020 to be Driven by Earnings Upside 
    • 2020 Economic Outlook - Peddle to the Floor; Caution at the Curb
    • Asia Securities Portfolio Returned 16.2% in 4Q CY19 vs. 8.2% ASPI
    • Top Picks Portfolio for 2020 is Overweight Consumer-Related Stocks
    • Euphoric Trading in Equities sees Sri Lanka Outperforming Regional Peers in 2H CY19…
    • …However, Large Caps are Yet to See a Major Recovery
    • Valuations are Picking Up; Focus Shifts to Economic Fundamentals
    • Political Risk Premium is Gradually Easing, but Foreign Fund Flow Muted
    • Fiscal Stimulus will Boost Growth and Consumer Spending
    • Business Confidence Continues Upward Trend, while PMI Maintains its Expansionary Streak
    • The Impact of the Fiscal Stimulus is Yet to be Reflected in CY20E Earnings Estimates
    • Idiosyncratic Risks Play a Large Role in Attracting Capital into EM
    • Global Investor Sentiment Seen Improving, and EMs would Likely Attract More Actively Managed Fund Flow
    • Sri Lanka Equities Remain Attractively Priced Compared to Regional and other EM Peers
    • Currency Volatility has been Contained in 2019
    • Local Bond Yields to Remain Low with Higher Market Liquidity
    • Strong Economic Fundamentals Key to Improving Fund Flow in CY20E
    • Earnings Outlook for CY20E Upgraded Post the Fiscal Stimulus