Prolonged W Asian crisis will unsettle markets
The escalation of conflict in West Asia has caused significant volatility in the Colombo stock market on Tuesday, with analysts indicating that a prolonged crisis will spiral the economy.
On March 3, the All-Share Price Index (ASPI) experienced its largest single-day drop, declining by 1,290.68 points (-5.44 per cent) to 22,443.38. The S&P SL20 Index also fell by 322.32 points (-4.86 per cent). A market-wide circuit breaker was activated within minutes due to the S&P SL20’s over 5 per cent drop, halting trading. Turnover reached Rs. 9.56 billion amid panic selling, with only five stocks gaining against 250 shares losing value.
While a moderate recovery was observed mid-Wednesday, factors contributing to the volatility included rising global crude oil prices, remittance risks due to West Asia conflicts, and disruptions to tea exports and tourism.
Economists predict a prolonged crisis, which will lead to inflation, which in turn will hinder recovery, with potential opportunities for Colombo as a transshipment hub arising from shipping diversions.
“West Asia is our vital corridor, channelling tea, oil, remittances and tourists etc. There will undoubtedly be a spillover of the conflict on our interest rates, inflation and exchange rates,” an economist said. However, it seems unlikely, a second economist said, noting that, given the strained war resources on all sides, the present intensity can be sustained. “We come from the context of our market being valued, expecting 2026 to be a stockpickers market, where selected companies outperform. This will continue to be the case, though returns may be more muted,” a stock market analyst told the Sunday Times Business.
Surging global oil prices, particularly Brent crude exceeding US$ 90, are jeopardising Sri Lanka’s trade balance and could reignite domestic inflation, according to a second analyst who said that threats to key maritime routes, namely the Strait of Hormuz and Red Sea, create a “dual-chokepoint” scenario that delays imports and reduces export competitiveness.
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