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Limited liquidity, cheap valuations, trigger event to drive market boom – Lynear Wealth Management

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Lynear Wealth Management has advocated increased exposure to equity securities in expectation of foreign inflows bringing back closer to average Price to Earnings Ratios for the market.

LYNEAR Wealth Management Head of Equities Asanka Herath said, “Very similar to how some of the local investors who built material stakes in large caps prior to the end of the war benefited from lack of liquidity when foreign funds came back and after the end of the war the individuals who build positions now onto our large caps will materially benefit when foreign funds pick up and there is no liquidity.”

Herath was speaking on May 22 to NDB Securities.

He said, “So we tend to adopt a value with Catalyst approach, shares have to be both undervalued and have a catalyst that can drive a validation of value investing founded by Benjamin Graham where you buy a share at a discount.

The problem with value investing is you do not know when the market will recognize the undervaluation and rerate the share. You run the risk of holding an undervalued chair for a prolonged time which is suboptimal for your returns.”

Herath noted that foreign holding in Lankan equities was below long-term averages. He said, “The Lankan equities have become largely under-owned by foreigners that have never been there for the last 20 years. Between December 2019 to September 2021 the foreign holdings in banks declined by something like 50%. During the 16 months from January 2022, we have seen 10 months of net foreign inflows.

This is true even if you take out the strategic holdings in the market. You see an increase in positions by fund managers like Hosking Global, Aberdeen, Tundra, Arcadian, and Parametric who were virtually absent since the beginning of the COVID-19 pandemic.”

He said, “We are at a point in time where one should very selectively deploy funds into equities and be very bullish on equities.” Herath was bullish on consumer stocks, banks, and export counters. He expected certain entities to retain prices at current levels even though the costs seen in the economy are reducing.

He said, “With the resurgence of demand we see no reason for the companies to pass on the savings to the consumers. We expect a substantial increase in earnings in the next few months. This is particularly so for the larger players in the market.” (TP)


Tuesday, June 6, 2023 – 01:00

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