ASSET PRIVATE MY WEALTH MANAGEMENT WEALTH MANAGEMENT MANAGEMENT MARKET UPDATE AND FUND REVIEW 2019 JUNE Click here for download MARKET BRIEF BY NDB WEALTH Inflation as measured by the CCPI decreased to 3.8% in June 2019 from 5.0% in May 2019, on a year on INFLATION RATE DECLINES year basis. Lower food inflation is the main catalyst driving the overall inflation lower. However, core inflation remained relatively high at 5.8% as at June 2019 (6.2% in May 2019). We expect inflation to be around 4% - 6% in 2019. Sri Lankan Rupee dips marginally for the month of June. The Sri Lankan rupee depreciated by a mere SRI LANKAN RUPEE 0.23% against the US Dollar during the quarter. It also depreciated against the Euro, Japanese Yen and DIPS MARGINALLY the Indian Rupee by 1.44%, 3.09% and 0.39% respectively during the period, while it appreciated by 2.90% against the Sterling Pound. The Central Bank concluded the second issuance of International Sovereign Bond in 2019 in June 2019. The Central Bank continued to be a net buyer of US Dollars in the second quarter of 2019, as total net purchases of US Dollars exceeded USD 138 million for the first five months of 2019. The benchmark 364-day Treasury bill rate decreased sharply by 170 basis points during the second BENCHMARK quarter to 8.70% as at June 2019. The issuance of the second sovereign bond, low credit demand, INTEREST RATE DECLINES improved liquidity in the market and lower global interest rates have been the key factors for the sharp decrease in interest rates. Foreign investors were net sellers of LKR denominated securities during the second quarter of 2019. Approximately LKR 22 billion worth of net selling was recorded within the second three months of 2019, drawing down the foreign holding of LKR denominated securities to 2.6% as at end of June 2019, from 3.1% in March 2019. We expect interest rates to decline in the immediate short term. The two main indices of Colombo Stock Exchange recorded gains in June; after recording losses for five POSITIVE RETURNS consecutive months in 2019. Despite positive returns In June, the All Share Price Index and the S&P SL 20 index have declined by 11.24% and 20.37% respectively, during the first half of 2019. While reducing interest rates are a positive signal to equity markets, continuous foreign selling and weak investor sentiment coupled with political uncertainty may hamper overall returns in the market. We expect the equity market to be range bound in the short term. Indika De Silva Fund Manager EQUITY OUTLOOK Past month Past 12 months Year to Date Performance Performance Performance (1st Jun - 30th Jun 2019) (Jun 2018 - Jun 2019) (1st Jan - 30th Jun 2019) All Share Price Index 1.15% -13.28% -11.24% S&P SL 20 1.08% -26.33% -20.37% MSCI Frontier Markets Index 2.35% 5.23% 12.14% MSCI World Index 6.63% 6.94% 17.38% MSCI Emerging Markets 6.24% 1.21% 10.58% MSCI Asia Ex Japan 6.58% -0.48% 10.70% Source: www.cse.lk and www.msci.com The two main indices of the Colombo Stock Exchange (CSE), All Share Price Index (ASPI) and S&P SL 20 Index, recorded gains for the first time in 2019 during the month of June. Significant reductions in interest rates helped bolster positive returns in June 2019. Emerging and frontier market indices recorded significant gains during the month, mainly owing to the decline in interest rates in the US. Lower interest rates in the US would cause US bond yields to drop, enticing investors to consider investments in riskier assets. As a result, despite the lower growth, easy monetary policy has benefited the emerging and frontier markets. Frontier markets and emerging markets grow at a much faster pace than developed markets. However, these markets also carry risks, particularly liquidity risk where markets are small, leading to entry and exit problems if you are invested in these markets. Colombo Stock Exchange Performance 8,000 16,000,000 14,000,000 7,000 12,000,000 6,000 10,000,000 5,000 8,000,000 ASPI / S&P 6,000,000 4,000 Turnover (LKR’000) Turnover 4,000,000 3,000 2,000,000 2,000 Jun - 11 Jun - 12 Jun - 13 Jun - 14 Jun - 15 Jun - 16 Jun - 17 Jun - 18 Jun - 19 Dec - 11 Dec - 12 Dec - 13 Dec - 14 Dec - 15 Dec - 16 Dec - 17 Dec - 18 Turnover S&P ASPI Source: www.cse.lk Jun 2019 Jun 2018 Market PER 8.60 X 10.39 X CSE Market PBV 1.01 X 1.25 X Market DY 3.73% 3.12% Market PER 12.54 X 13.71 X MSCI Frontier Market Market PBV 1.83 X 1.89 X Market DY 4.31% 3.88% Source: www.cse.lk Foreigners remained net sellers of over LKR 700 million in June. Colombo Stock Exchange Jan - Jun 2019 Jan - Jun 2018 Foreign Inflows LKR 23.69 Billion LKR 49.26 Billion Foreign Outflows LKR 30.03 Billion LKR 50.57 Billion Net Foreign Inflows/(Outflows) (LKR 6.34 Billion) (LKR 1.31 Billion) Source: www.cse.lk THE INVESTOR OF TODAY DOES NOT PROFIT FROM YESTERDAY’S GROWTH Warren Buffet FIXED INCOME OUTLOOK INTEREST RATES IN SRI LANKA Since the monetary policy meeting in May the Standing Lending Facility Rate (the rate CBSL lends to commercial banks) and the Standing Deposit Facility Rate (the rate which commercial banks place their excess cash with CBSL) is at 8.50% and 7.50% respectively. Jun 18 Dec 18 May 19 Jun 19 364 Day T-bill 9.39% 11.20% 8.88% 8.70% 5-Year Bond 10.36% 11.56% 9.98% 10.00% 1-Year Finance Company Fixed Deposit Ceiling Rate 12.11% 12.46% 12.79% 12.79% * Gross Rates provided. Net returns earned on Government Securities would vary depending on the individual’s tax bracket while Source: Central Bank of Sri Lanka Fixed Deposits will be subject to a ¬final WHT of 5% for individuals. AVERAGE LENDING & DEPOSIT RATES YIELD CURVE - LKR TREASURIES Rate% Rate 25 12% 20 11% 15 10% 10 9% 5 8% 0 7% 3 6 12 24 36 48 60 Jul - 11 Jul - 16 Jan - 09 Jan - 14 Jan - 19 Jun - 09 Jun - 14 Jun - 19 Oct - 12 Oct - 17 Apr - 10 Apr - 15 Feb - 11 Feb - 16 Feb Sep - 10 Sep - 15 Mar - 13 Mar - 18 Dec - 11 Dec - 16 Aug - 13 Aug - 18 Nov - 09 Nov - 14 Nov May - 12 May - 17 Time to Maturity AWDR (%) AWFDR (%) AWLR (%) AWPR (%) Jun-18 Jun -19 Source: Central Bank of Sri Lanka AWDR: Average Weighted Deposit Rate | AWFDR: Average Weighted Fixed Deposit Rate | AWLR: Average Weighted Lending Rate | AWPR: Average Weighted Prime Lending rate Treasury Bill rates decreased across the board with the benchmark 364-day T-Bill rate falling to 8.70% and the 91-day and 182-day T-Bill closing the month at 8.24% and 8.49% respectively. Broad money (M2b) growth slowed to 9.00% year-on-year in April, from the previous month’s 9.80% whilst credit extended to the private sector slowed considerably to 9.90% year-on-year from 11.30% in March. During the month private sector credit disbursements were down significantly by LKR 43.40 Bn. (-0.8% m-o-m). This was the largest decline seen in loans to private borrowers in recent history. All commercial banks reduced their fixed deposit rates in July following the revision of the deposit ceiling rates effective July1st. effective of thedepositceilingrates therevision inJulyfollowing depositrates banksreducedtheirfixed All commercial billion. 18.4 LKR sellers amountingto remainednet foreigners basistoo securities.Onayear-to-date sellingoutoflocalgovernment investors 2.67%,withforeign amarginalLKR25millioninJuneto by however falling securitiesdeclinedfurther, holdingofgovernment Foreign COMB SAMP NDB HNB NSB 1 Year FD Rates –SriLankanBanks FDRates 1 Year LKR Bn. 100 200 300 400 500 0 Jan - 15 456 453 456 Apr - 15 459 450 Domestic (Bills&Bonds) 433 Jul 2019 Jul - 15 401 9.83% 9.83% 9.83% 9.00% 9.83% LKR 5,333Billion 375 LKR 918Billion T Bills(Total) 333 Oct - 15 311 304 Holding ofBillsandBonds-2.67% Foreign Total 304 Jan - 16 289 271 220 Apr - 16 224 Outstanding Securities LKRGovt. May 2019 11.00% 11.00% 10.00% 10.00% 10.50% 241 FOREIGN HOLDING OFLKRG-SEC FOREIGN 252 Jul - 16 288 302 314 Billion LKR 5,479 Oct - 16 301 278 289 Jan - 17 240 196 196 Apr - 17 204 219 Rates onCreditCards Rates 236 Jul - 17 255 268 290 Sampath Oct - 17 302 (Bills&Bonds) Foreign AMEX HSBC NDB SCB 310 LKR 4,561Billion LKR 146Billion 324 T Bonds(Total) Jan - 18 330 Source: Central BankofSriLanka Central Source: 321 320 BankofSriLanka Central Source: Apr - 18 324 307 295 Jul - 18 288 Source: Respective Commercial Banks Respective Commercial Source: 277 249 Oct - 18 221 198 165 Jan - 19 151 161 31.80% 28.00% 31.80% 31.80% 31.80% Jun 19 168 Apr - 19 155 146 146 NDIB CRISIL Fixed Income Indices 3 Month 1 Year 3 Year Total return as at 28/06/2019 Return Return Return NDBIB-CRISIL 91 Day T-Bill Index 2.46% 9.25% 9.08% NDBIB-CRISIL 364 Day T-Bill Index 3.82% 10.35% 10.17% NDBIB-CRISIL 3 Year T-Bond Index-TRI 5.70% 12.65% 13.25% NDBIB-CRISIL 5 Year T-Bond Index-TRI 7.12% 13.47% 13.99% Source: www.crisil.com Central Bank Policy Rates 2016 2017 2018 Latest Sri Lanka 7.00% 7.25% 8.00% 7.50% US 0.50% - 0.75% 1.25% - 1.50% 2.25% - 2.50% 2.25% - 2.50% Euro Zone 0.00% 0.00% 0.00% 0.00% Australia 1.50% 1.50% 1.50% 1.00% India 6.25% 6.00% 6.50% 5.75% Source: www.cbrates.com 1 YEAR TREASURY RATE - USD Vs.