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manusath-derana

What caused wave of foreign selling in share market?

February, 23, 2014

The latest trend at the Colombo Stock Exchange is the sale of large chunks of 

shares held by foreign investors in from large Sri Lankan companies.

 

During the past few weeks foreign investors have sold such large chunks of
shares worth billions and pulled back the money to their respective
countries.

 

Though there had been a recent increase in the money supply due to the
continued printing of currency by the US Central Bank, this trend has now
reversed with the money supply showing a decrease as the US Central Bank has
stopped printing currency.

 

Hence, foreign investors have begun selling their overseas assets to obtain
their necessary funds.
In this process their first conversion into cash are the investments in high
risk share markets.

 

In the wake of this wave, foreign investors have begun converting their
investments into cash even in the share markets of countries like India and
China.

 

Since such foreign outflows cause a decline in the country’s dollar reserves
it impacts adversely on the foreign exchange as well.

 

This means that it could cause a depreciation of the Rupee.

 

Also, this trend could also make share prices tumble at the Colombo stock
market.

 

Analysis shows that this trend of foreign selling could prevail for a few
more months.