Sri Lankan shares fell more than 1 per cent to hit a near five-week closing low on Tuesday as foreign investors sold off risky assets on fears of a China-led global economic slowdown and panic selling by retail investors for month-end settlements.
The main stock index ended down 1.36 per cent, or 99.51 points, at 7,231.58, its lowest close since July 23. The index has fallen 3.2 per cent in the last two sessions, mainly due to a global selloff.
Turnover stood at 1.44 billion ($10.73 million), above this year’s daily average of 1.16 billion rupees.
“With the huge fall on Monday there was some panic selling,” said Dimantha Mathew, a research manager at First Capital Equities (Pvt) Ltd. “The market will be slow, dull and in the red this week.”
Mathew expects the market to recover in September.
Foreign investors were net sellers of 199.7 million rupees worth of shares on Tuesday, extending the year to date net foreign outflow to 1.53 billion rupees.
Shares in conglomerate John Keells Holdings fell 2.12 per cent, while Nestle Lanka fell 2.19 per cent, dragging the index down.
The Sri Lankan rupee fell for a third straight session on Tuesday after a state-run bank, through which the central bank usually directs the market, raised the currency’s peg against the dollar by 15 cents, allowing the exchange rate to depreciate to 134.25.
The rupee closed at 134.25 per dollar, 0.11 per cent weaker from Monday’s close of 134.10. It has fallen 0.26 per cent in the last three sessions.
“Though the state bank defended the rupee at 134.25, custom transactions were higher than the rate. Outside inter-bank dollar buying happened at more than 134.25 and importers bought at more than the exporters’ selling price,” said a currency dealer on condition of anonymity.
“There was importer dollar demand and the market is finding its equilibrium because the central bank is not easily offering dollars to the market. As an emerging market, we may see some dollar scarcity with what is happening in China.” The market had expected the central bank to allow a slight depreciation in the rupee, in line with other regional currencies that have declined against the dollar.
Dealers said defending the rupee could have a negative impact on the country’s international trade due to an over-valued currency.
Currency dealers expect the central bank, which has so far this year directed the market through the state-run bank, to let the currency remain weaker after last week’s parliament elections due to importer dollar demand and the global trend of weakening currencies against the dollar.(Gulf Today)