- Economic activities resume; major debt repayment concerns eased
- We recommend a mix of value and growth; eight stocks in focus
Equities marked a V-shaped recovery since the market opened, which saw the ASPI recover 19.6% from the bottom, while S&P SL20 recovered 31.3%. YTD, the ASPI has seen a 16.8% decline. The current recovery is partly a retracing of the unwarranted drawdown seen before 20th March (when markets closed) and in May (right after markets opened). Local investors have dominated activity, while foreign outflows have continued (LKR 21.7bn outflow YTD). Investor participation has nevertheless been strong, with average daily volume of ~LKR 1.3bn (25.7% above the 1Q CY20 average). The ASPI has been on a classic measured upward move; re-rating gradually, followed by a period of consolidation. The current momentum indicates a continuation of this pattern in the short-term.
Economic activities resume; major debt repayment concerns eased
With the lockdowns easing, economic activity has resumed gradually. This is in line with our base case macro expectations published in April, and we believe these are widely understood by the market. If the current containment measures continue, 2Q CY20 would sustain the largest economic impact, and 3Q CY20 would see a slight improvement as activity levels grind back. A key investor concern in the current backdrop was SL’s ability to refinance USD debt. We factor in a low probability of default for 2020 on the back of 1) current reserves of USD 6.7bn, 2) tapping into multilateral and bilateral funding lines (ADB: USD 300mn, WB and AIIB) 3) USD 1.2bn funding from China Development Bank, and 3) the existing pipeline of funding of ~USD 5.0bn which is currently under negotiations (swap with RBI and a USD 1.0bn repo from the Federal Reserve Bank of New York).
We recommend a mix of value and growth; eight stocks in focus.