Sri Lanka’s First Capital recommends investors to reduce overall portfolio exposure to 45% from 60%.
The firm recommends cutting 2021 and 2022 maturities of the carrying portfolio amidst the significant reduction in yields and also recommended an increase in 2023 and 2024 maturities in the trading portfolio amidst the slight rise in yields.
“In our last fixed income report on 24th Jun 2019, we upgraded our expectation in the First Capital Economic Health Score, primarily supported by the successful issuance of USD 2.0Bn sovereign bond and possible further issue of additional bonds amounting to USD 2.5Bn to manage debt in 2020 A surge in foreign currency reserves and stability in all other indicators may significantly strengthen macro-economic conditions and reduce volatility of interest rates,” First Capital Research said in its fixed income report -29 July 2019.
Accordingly, First Capital maintained their yield curve expectations in the bond market for the next couple of months.
Yields dipped during last few weeks primarily led by Sri Lanka’s successful International Sovereign Bond.
Following the issuance, foreign reserves exhibited a significant improvement reaching 8.8 billion US dollars as at end of Jun 2019.
First Capital expects reserve to be maintained above 7.5 billion US dollars during August to December 2019.
“The Federal Reserve this week may most likely cut rates for the first time since 2008, with the US economy directed towards recession partly due to the trade war, as the FED tries to keep a record of economic expansion from petering out. With the US Dollar expected to weaken during the 2H2019, we expect LKR to be supported by lower imports amidst lack of consumer demand.”
“In SL we expect the improving external environment and strong foreign reserve position to favour in order to maintain the current low yields over the next 6-9 months,” first capital said.