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STRATEGY REPORT 2020

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Quibit

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Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics

Fiscal loosening weakens 2H2020 Outlook

Yield Curve to move upwards by 50-100bps
• With the rise in borrowing pressure, we expect a gradual increase in pressure on bond yields throughout 2020 excluding the 4Q where debt maturities are onto the lower side. We have moved up our target bond yield bands and expect the yields to enter the bands by 2Q and afterwards gradually move up further during 2H2020.
Banking Rates (AWPR) to remain low c.9.5% in 1H and range from 9.5%-10.5% over next 12 months
• In line with the 5 Yr bond, we expect the AWPR to have bottomed out around 9.5% and remain around c.9.5% during 1H2020. During 2H2020 we expect a slight increase in AWPR but is likely to remain within the band of 9.5% - 10.5%.
Exchange Rate 2020 target of LKR 188.0-190.0 with stronger depreciation in 2H2020
• With the potentially stable external environment, we expect the USD/LKR rate to stay stable in the 1H2020. As consumer demand accelerates towards 2H, we expect to witness a possible weakness in the currency.
ASPI target maintained at 6,500 by Jun 2020; Dec 2020 ASPI target raised to 7,500 (from 7,000) with the tax cuts; INCREASE EQUITY EXPOSURE to 100% from 90%
• With the recovery in economic activity and company earnings, we expect an upward trend in the market supported by stronger market multiples. The heavy tax cuts and the policy rate cut is likely to be an added boost for company earnings. Considering the mid-term positive impact, we upgrade our equity exposure to 100% while maintaining our ASPI expectations for Jun 2020 at 6,500, assuming Market PER to be in the range of 8.5x – 9.5x. However, We upgrade our ASPI target for Dec 2020 to 7,500 from the previous 7,000 amidst the added boost to the economy.

https://www.firstcapital.lk/reports/strategy-report-2020-jan-2020/

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