Foreign buying high; swimming against the tide
It was a case of ‘the time to buy is when there is blood on the streets’ for foreign investors at the Colombo share market for the past month.
The worse things seem in the market, the better the opportunities are for profit for foreigners, when analysing their buying behaviour since the Easter terror attacks till mid last week, analysts say.
They say that foreign funds believe in ‘bad times make for good buys’. “This is swimming against the current of common opinion and coming out on top,” an analyst opined. Some foreign funds are asking for certain stock quantities that stockbrokers cannot offer, he said noting that they act on ‘when everyone else is selling, it’s a great time to purchase.’
The Easter Sunday terror attacks haven’t perturbed the foreign buyers so much so, that they are placing orders for stock quantities that the brokers can’t find,” another stock market analyst added. In the aftermath of the attacks, foreigners have been on a buying spree. By last Tuesday net foreign buying was at Rs. 1.8 billion. Wednesday saw a bit of selling, but analysts said that buying will rebound by this week.
“Except for Sri Lanka, foreigners have experienced attacks such as these in most of South Asia. Most emerging foreign funds are used to this. Now they only rely on the valuations,” Dimantha Mathew, Head of Research at First Capital told the Business Times. The Colombo Stock Exchange (CSE) has been trading at 8 to 9 times earnings in the recent past. “Terror attacks have happened elsewhere in the region. Now most foreigners are immune to this kind of situation. We saw that foreigners increased their exposure immediately after the attacks and grabbed the opportunity,” Mr. Matthews noted.
Other analysts agreed. They said that the silver lining in the whole sad situation is that most western investors understand the enemy because they have lived with the same threat. “So even now they’re looking for bargains,” an analyst said.
Tundra Sustainable Frontier Fund in its April update said that “this type of event should be seen as uncommon in Sri Lanka as it was in Paris, Marseille or Stockholm. There is no traditional breeding ground for religiously motivated terrorism in the country. The civil war that ended in 2009 had a completely different background.” The statement added that the recruitment base for terrorists tends to be found among the most vulnerable groups of a population with limited educational background, whereas several of the attackers in this case were well-educated, some educated abroad. “Sri Lanka is often used as an example of a country with great tolerance for different religions and although confrontations have arisen between mainly Buddhists and Muslims, one must conclude that the shock from the events is as significant as when it occurred in Sweden,” it said.
Mr. Matthews said that the macro economy is improving with liquidity increasing in the market etc. “With liquidity increasing, interest rates will be lower. We also see inflows coming in. These are aid to rebuild, worker remittances to build what was destroyed in their families, etc which will help the increase in money supply.”
However, the paradox is that locals sold because they thought that foreigners will do so too. “Local investors got it wrong,” the analyst said.