October 9, 2019 (LBO) – The Sri Lankan stock market surged in response to presidential candidate Gotabaya Rajapaksa officially securing the support of the Sri Lanka Freedom Party (SLFP).
SLFP support was seen as crucial to Rajapaksa’s campaign, and was by no means guaranteed. In Sri Lanka’s 2018 islandwide local government elections, when the votes of the SLFP and Rajapaksa’s Pohottuwa party are added, the subsequent total is well over the 50% islandwide count needed to secure victory at a Presidential election.
Sri Lanka’s total market cap weighted index, the all share price index (ASPI), was up 1.2% on the day. In a more dramatic move the S&P SL 20 (an index of 20 blue chips) surged over 2.5%. Volumes were relatively light with around US$5mn worth of stocks traded.
The stock market had been meandering for the last few weeks after a brief spurt which some market participants termed the “Gota Rally.” Gotabaya Rajapaksa is seen as a stock market friendly candidate due to supporters in his inner circle being associated with Sri Lanka’s post war stock market boom.
Sri Lanka’s stock market appears relatively cheap, trading at close to book value with an aggregate PE ratio of around 10. Recent earnings results have been weak due to sluggish GDP growth coupled with the economic shocks caused by the Easter Sunday terror attacks, which struck the island nation this year.