Strategy Note /
Sri Lanka

Sri Lanka Equity Strategy H2 19 — Cherry picking to optimise opportunities

    Kavinda Perera
    Kavinda Perera

    Head of Research

    Contributors
    Isuri Munasinghe
    Naveed Majeed
    Lakshini Fernando
    Mangalee Goonetilleke
    Asia Securities
    19 July 2019
    Published by
    • In this 125-page report we explore the drivers of equity market performance in H2 19. 
    • Equities primed for a pick up; low interest rates and optimism on unlocking political uncertainly to drive up markets
    • Excess market liquidity and low credit growth indicate further downside to market interest rates; rates to drop by 50-75bps in the short-term
    • Fund outflows from both equity and debt markets have stabilised; downside risk if election-related volatility increases in 4Q CY19
    • Emerging markets outlook remains positive, but highly levered towards US-China trade concerns
    • ASPI to reach 6,200 by end of 2019, largely driven by an expansion of multiples, while earnings growth would see some pressure
    • CY19 earnings to be weak with index-heavy banks and conglomerates remaining under pressure
    • We are cautiously optimistic about the long-term macro outlook
    • Fundamentals hold steady as the economy steers towards a slow recovery
    • 2H CY19E will see a consumer led growth recovery, albeit at a slow pace
    • Slowdown in credit growth remain a concern; looks to improve in 4Q CY19E
    • Key picks for 2H 2019 include five long-term value picks and three short-term momentum picks
    • Asia Securities key picks portfolio showed mixed results in 1H CY19; index heavy banks saw a larger drop