BC-The-World’s-Best-Stock-Rally-Is-in-Sri-Lanka , Livia Yap

(Bloomberg) — Sri Lanka stocks have returned a world-beating 30% so far in 2021 as domestic investors get more active.

Local individuals were responsible for 79% of total market turnover last year, according to the nation’s stock exchange, amid a 70% increase in new accounts from 2019. At the same time, overseas investors were exiting — they sold $272.8 million of shares, data compiled by Bloomberg showed.

As the pandemic rebound got underway, abundance of global liquidity, substantial rate cuts and domestic retail participation have helped fuel the rally,” Joshua Crabb, a Hong Kong-based money manager at Robeco, said in an interview. Keep in mind the currency has also weakened, which makes exports more competitive, encourages tourism and introduces inflation, which helps nominal assets like equities.”

The March selloff saw the CSE All Share Index plunge 32% as a dearth in tourism, increased political uncertainty and concerns about debt sustainability weighed on risk appetite. Since then, the central bank cut its key rate by 200 basis points and provided liquidity, helping the island nation beat a recession. The country has even reopened its airports for international tourism. Equities have now more than doubled to records from their 2020 lows, and trading volume on the Colombo Stock Exchange hit a record $77 million this week.

Progress in accessing Covid-19 vaccines has also provided a tailwind. Sri Lanka approved the Oxford University-AstraZeneca PLC vaccine for emergency use last week after a surge in cases since October. Some 500,000 doses are scheduled to arrive from India on Jan. 28, the government said.

It’s encouraging to see Sri Lanka taking action on the vaccine front but developments still need to be monitored, Robeco’s Crabb said. After the rapid rally, he says stocks may be due for a pause.

In the near term, I would expect the market to consolidate its gains,” he said. At current valuations, we really need to see an improvement in the economy and in company earnings to see another leg up.”