Strategy Report – January 2018

Bond Market
•We expect the yield curve in Government securities to have upward pressure in 2Q & 3Q in 2018, but First Capital Research has reduced the expected peaks in bond rates (1Yr, 5Yr & 10Yr) amidst the sharp rise in the health of the economic indicators towards 4Q2017. We expect the yield curve to marginally ease off again towards the 4Q2018, but not too much considering 1Q & 2Q 2019 maturities including maturities of 2 sovereign bonds.

Banking Rates
•Banking rates which has a 6 month lag effect to Government securities are likely experience a dip in deposit and lending rates during the 1Q2018 while maintaining less volatile movements for the rest of the year with only marginal movements.

Exchange Rate
•With further depreciation in the Dollar expected against global currencies and higher level of foreign inflows including FDIsour base case (65%) is slightly bullish with depreciation expected at only 2% at LKR 156 : 1 USD.

Equity Market
•We expect Market returns to be slow but generate returns of 10%-12%, above the expected earnings performance as some counters are likely to re-rate with expected better earnings outlook in the future. ASPI index is expected to reach 7000 (+10% or +650 points) towards end of 2018. Market returns are likely to accelerate towards the 2019 to reach 8000 level (+15% or +1000 points) with the actual earnings performance and renewed investor confidence. These targets however are highly dependent on the current stable outlook and reform agenda continuing during 2018 as well.

Business Confidence & Consumer Demand
•We expect business confidence and consumer demand to improve from 3Q2018 onwards improving overall business activity of the economy.

For the full Report including Track Record, Factors to Consider for 2018 Outlook, Political Uncertainty may clear out beyond Feb 2018: Neutral, Economic Outlook to slowly improve: Neutral, External Environment: Neutral, Recommendations (First Capital Research View on Bond Market for 2018, First Capital Research View on Banking Rates for 2018, First Capital ResearchView on Exchange Rates for 2018, First Capital Research View on Equity Market for 2018, First Capital Research View on Business Confidence & Consumer Demand for 2018) and Requirements to improve weaknesses please click the link below

Strategy-Report-2018-Jan-2018

Source: First Capital Research

Image Courtesy: First Capital Research