Strategy Note /
Sri Lanka

Sri Lanka Equity Strategy Q4 19: Position amidst seasonable sentiment

    Kavinda Perera
    Kavinda Perera

    Head of Research

    Contributors
    Isuri Munasinghe
    Naveed Majeed
    Mangalee Goonetilleke
    Lakshini Fernando
    Asia Securities
    27 September 2019
    Published by
    • Equities’ recovery eases on short-term uncertainty; election-driven optimism to be revived in Q4. 
    • The valuation discount implies that the market continues to reflect the political and earnings risks after Easter attacks.
    • Political risk-related premium is gradually easing, albeit foreign fund flow remains muted.
    • Fundamentals are gradually improving, but growth to remain below EM and Developing Asia.
    • Business confidence is recuperating, while PMI is on an expansionary streak.
    • Earnings expectations for CY19E are fully adjusted for the slow economic conditions; earnings growth for CY20E is yet to be reflected in valuations.
    • Muted foreign flows to continue through CY19, but policy stability to result in improving fund flow in CY20E.
    • While earnings headwinds in consumer sectors would clear in CY20E, the index-heavy banks will remain under pressure.
    • Key picks portfolio comprise five stocks, with five additional counters on our watchlist.
    • Asia Securities’ equity portfolio returned 8.5% in 3Q CY19, outperforming the ASPI.
    • Macroeconomic outlook: Moderate growth outlook; policy uncertainty at the forefront.