December 08, 2019
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    WSJ post says SL would be ‘least affected’ by changes in dollar’s value

    May 15, 2018

    Sri Lanka tends to be among the economies least affected by changes in the dollar’s value, so the country may suffer less than a number of other frontier markets, an analysis by Daniel Salter at Renaissance Capital, a frontier-focused investment bank, stated in a recent Wall Street Journal post.

    Focusing on key indicators such as recent credit growth, currency overvaluation and external debt levels, the firm has found Pakistan, Egypt, Kenya, Tunisia and Sri Lanka could present problems for investors if the market environment worsens—for example through intensifying trade disputes or further appreciation in the dollar.

    According to the post, Argentina is among the countries that are most vulnerable to pain as the US Treasury yields rise and the dollar strengthens.

    James Thom, a senior investment manager at investment firm Aberdeen Standard Investments, believes Sri Lanka’s market has great potential. "Although the economics and politics can be a bit challenging, the market is looking pretty cheap at the moment," he said.

    Thom, whose fund takes a stock-picking approach to building its portfolio said that the macroeconomic and political picture in the South Asian nation {Sri Lanka} can be misleading and "The country is creating opportunities for us at a company level. All the ingredients are there for a break-out," he said.

    Earlier in the month, Central Bank of Sri Lanka (CBSL) stated that although it possessed foreign reserves worth US$ 10 billion, it wouldn't intervene in the forex market to influence the dollar/rupee exchange rate as it has allowed the market forces itself to assign the rupee a fair value for obvious reasons. However, the CBSL went on to say that they would intervene if the forex market didn't settle as expected.

    According to the CBSL, earnings from tourism had increased significantly in February 2018. However, workers’ remittances had declined in February 2018 following a growth in January. Meanwhile, the financial account of the balance of payments (BOP) had recorded a net inflow of foreign investments to the stock exchange, helping to counterbalance a net outflow in the government securities market in February 2018.

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