Sri Lanka’s First Capital recommends investors to increase overall portfolio exposure to 50% from 45% by reducing exposure in the carrying portfolio from 30% to 15% while increasing trading portfolio from 15% to 35%.

The firm recommends to cut short tenor maturities of the carrying portfolio amidst the significant reduction in yields while we recommend an increase in 2023 and 2024 maturities in the trading portfolio due to attractive yields.

“In our last fixed income report on 29th July 2019, we downgraded our expectation in the FI Health Score due to lower liquidity and foreign selling. We recommended our investors to reduce overall portfolio exposure to 45% from 60% while we remain positive only on selected mid tenor maturities. Thereafter, yields spiked by 20-65bps in the overall yield curve on the back of foreign selling. During last two weeks foreigners sold LKR 25.1Bn with the surprise policy rate cut of 50bps by CBSL on 23rd Aug, one policy meeting ahead of our expectation,” First Capital Research said in its fixed income report -18 October 2019.

First Capital expects reserves to be US $8 billion towards 2019-year end while maintaining above US $ 7.0 billion by end of 1H2020.

‘Sri Lanka has appointed lead managers for a USD 500.0Mn equivalent Samurai bond which will have a guarantee from Japan Bank for International Corporation (JBIC). Sri Lanka’s next international sovereign repayment is only due in Sep 2020 amounting USD 1.0Bn while 1Q and 2Q 2020 constitute USD 0.9Bn of SLDBs maturing. Raising funds well in advance for repayment is expected to significantly strengthen macro-economic outlook for Sri Lanka and to reduce unnecessary volatility. We expect reserves to be c.USD 8.0Bn towards 2019-year end while maintaining above USD 7.0Bn by end of 1H2020,” First Capital Research said.

First capital also expects market liquidity to improve and stay positive with the lower level of private credit growth.

“Post presidential elections, with the possible easing off of political uncertainty and coupled with favorable macro environment creates a strong case for foreign inflows potentially towards the end of 4Q2019,” First Capital Research said.