SC Securities Research Weekly Market Update

For the Week Ended 25th June 2021

Index Gains Despite Midweek Wobble, Turnover for the Week Came in Low

ASPI, 21st June – 25th June

7,726.73 7,743.71 7,742.14 7,809.15

Up 116.43 Up 16.98 Down 1.57 Up 67.01

S&P SL 20, 21st June – 25th June Source: CSE

3,064.45 3,026.08 3,029.60 3,042.63

Down 2.58 Down 38.37 Up 3.52 Up 13.03

Foreign Purchases vs. Foreign Sales (in LKR Mn) Daily Turnover for the Week (in LKR Mn)
Source: CSE Source: CSE

500 2,500
411 400
400 1,938
2,000
1,954 1,552
300 241 1,500
1,214
200 1,000
80 65 67
100 50 500
7
- -
21-Jun-21 22-Jun-21 23-Jun-21 24-Jun-21 25-Jun-21
1

1
-2

-2

-2

-2

-2
un

un

un

un

un
Foreign Purchases Foreign Sales
-J

-J

-J

-J

-J
21

22

23

24

25
§ The ASPI rose 1.07% this week.
§ The S&P SL 20 fell 0.71%.
§ The week saw the index experience some volatility amidst a low turnover environment. Wednesday saw the index
undergo somewhat a rollercoaster ride however, both indices were able to recover much of its lost ground.
§ The market Relative Strength Index (RSI) came in at 75.63, which is in the overbought region.
§ Foreign participation was tepid with buying coming into counters such as TILE and selling occurring on DIPD.

Headline Inflation Passes Target Threshold Whilst the Government Braces for Potential Removal of GSP+

§ Headline inflation based off the National Consumer Price Index (NCPI) rose to 6.10% in May finally crossing the
Central Bank’s target threshold (4.0% - 6.0%) driven by rises in the Food and Non-Food segments. We estimate
that this figure will only rise further in June on the back of the fuel hike coupled with an ever-depreciating exchange
rate. We maintain that the Central Bank must revise policy rates upwards to combat the inflationary pressures.
§ State Minister, Ajith Nivard Cabraal stated this week that the government is bracing for the eventual loss of Sri
Lanka’s GSP+ scheme, but that full efforts will be made to avoid such an event. As discussed last week, the loss of
the scheme would hinder exports to Sri Lanka’s second biggest market – The EU, resulting in a significant loss of
foreign income into the country.
§ Fitch Ratings cited that last week’s revoking of the suspension of banks in investing in International Sovereign
Bonds had the potential to increase the banks’ exposure to sovereign and foreign-currency funding and liquidity
risks. They further stated that local banks will continue to face difficulties tapping into FX funding due to the
country’s low credit rating.
 Bond Auction Fail to Sell 57% of Offering Further Signalling Future Policy Rate Revision

Spot Rates

Current Previous Week Change

LKR/USD 199.87 199.83 +0.04
LKR/ GBP 278.49 278.47 +0.02
LKR/EUR 238.69 238.11 +0.58
LKR/JPY 1.80 1.81 -0.01
Source: CBSL

§ Currency fluctuations remained inactive compared to last week.

§ In the secondary market, the bond auction held on Tuesday, 22nd June 2021 saw 57% of the bonds auctioned go
unsold with a large quantum of short tenor bonds going unsold as well.
§ This along with last weeks’ auction, where 60% of the bonds went unsold, results in the Central Bank having to
print more money which will decrease the value of the rupee whilst further strengthening calls for a policy
revision – which we have continuously highlighted as the way forward.
§ The next Monetary Policy Review will be held on the 08th of July.

Gold Continues its Descent as Dollar Strengthens Further, Oil Hits Two-Year High as US Supplies Tighten

Current Previous Week Change

Oil, Brent (USD per Barrel) 75.62 72.65 +2.97
Gold (USD per Troy Ounce) 1,776.30 1,792.00 -15.70
Copper (USD per pound) 4.32 4.18 +0.14
Aluminium (USD per Tonne) 2,397.50 2,427.50 -30.00
Source: Gold Council, London Metal Exchange, Reuters

§ Gold prices fell further this week on the back of a stronger U.S. Dollar that made the precious metal more expensive
for holders of other currencies.
§ Oil prices rose to a two-year high this week with Brent prices climbing above USD 76 per barrel earlier this week
on the back of U.S. crude inventories decline as travel pick-ups.
§ We maintain that oil prices will increase above the USD 80 per barrel threshold withing the next month or so.
Furthermore, we think that the alleviation of oil prices may not come as expected later in the year due to the
worsening of the geopolitical situation between the U.S. and Iran.
§ This may be reflected with further potential hikes in the local oil price.

Asian Stocks Rise as Biden Gives Green Light on Infrastructure Injection Bill

§ Asian markets rose on Friday tracking gains on Wall Street, that lifted the Nasdaq and S&P 500 to record highs
after the U.S. embraced an infrastructure deal by way of a USD 579 Bn injections for investments in roads,
broadband internet, utilities, and other projects.
§ Chinese blue-chips rose 0.43% while Hong Kong’s Hang Seng and Seoul’s Kospi rose by 0.61% and 0.79%
respectively. The Nikkei was up by 0.59%.
§ Pan-European Stoxx 600 ended 0.9% up boosted by rallies in travel and leisure shares.
§ In the UK, the FTSE 100 rose after the Bank of England (BoE) decided to keep its monetary policy unchanged (0.1%)
despite concerns of inflation potentially crossing the BoE’s target threshold of 3.0%.
 Notions on the ASPI

Source: Investing.com
§ The daily RSI closed at 75.63 for the week, which is in the overbought region.
§ The daily chart of the ASPI indicates that the index remains bullish as it made a high-low at 7,766.63 and got
rejected from the daily support level of 7,650-7,700. The index closed at 7,809.15, the next daily resistance is at
7,950-8,000 could be tested if the index manages to break the current daily resistance level of 7,800-7,850.
§ The index is also trading above 18 & 8 Exponential Moving Average (EMA) levels – which indicates a bullish
momentum.

Pick of the Week – Vallibel Power

Source: Investing.com

§ The monthly RSI of VPEL closed at 61.65 which is in the mid-range.

§ The price got rejected from the monthly resistance LKR 8.40 – LKR 8.70 and tested the monthly support level of
LKR 7.00 – LKR 7.30. As the current price is above the monthly support level, the monthly resistance could be
tested once again. Moreover, a successful breakout above the monthly resistance can drive the price to the next
monthly resistance of LKR 9.70 -LKR 10.00. However, if the price gets rejected again from the monthly resistance,
the price could consolidate in between LKR 7.00 – LKR 8.70.
§ Furthermore, the 18 & 8 EMA’s indicate a bullish momentum since the price is trading above the EMA’s.
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