Sri Lankan Equities Still Attractive Amid Foreign Outflow Blip

The biggest single-day outflow in at least 11 years from Sri Lankan stocks is a blip and foreigners, the key drivers of the nation’s equities this year, will likely overlook the negative reading.

Retail Holdings Sri Lanka BV on Wednesday agreed to sell its 61.73 percent stake in Singer Sri Lanka, a maker of sewing machines, to Hayleys Plc for about $71 million. A matching outflow was reported by the exchange on Friday.

“This is a one-off deal that has nothing to do with inflows,” said Sanjeewa Fernando, strategist at CT CLSA Securities in Colombo. “We have to adjust for this outflow.”

Foreigners have been buyers of Sri Lankan stocks for seven straight months through August, the longest streak since May 2015, drawn by the growth in company earnings and renewed confidence in the government’s policies. The nation’s benchmark equity index trades at 10 times one-year forward earnings, versus a multiple of 15 for the MSCI Frontier Emerging Markets Index.

“Our price-to-earnings is still about the cheapest,” Fernando said. “Until we reach valuation of 14 times, foreigners are likely to transfer some of their funds from pricier markets.”

    Before it's here, it's on the Bloomberg Terminal.