Why Did Sri Lanka’s Investors Flock Stock Market Amid Country’s Extreme Economic Crisis?

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Is Nepal facing the same economic crisis as Sri Lanka, not just the general public, from economists to policymakers? Currency inflation is also increasing in Nepal. The inflation rate has increased to 5.97% in March, according to the National Bank of Nepal.

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Sri Lanka’s foreign reserves have fallen by 70%, with only $2.31 billion left in total. The high dependence on imports of essential commodities such as sugar, pulses, and food has added fuel to the economic downturn. CNBC has written that Sri Lanka could face a trade deficit of $10 billion this year.

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The restrictions imposed on foreign reserves helped attract investors to the stock market. When the country faced a financial crisis, the stock market there reacted with a surprising reaction. So far, the stock market hit a record high last January (Thursday, 19th). On that day, the market reached a record high of 13,000, 109.8 points.

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However, the positive reaction of the stock market during the economic crisis can be seen as an important factor in stimulating economic activity. The index continued to set new records as the country headed toward an economic crisis.

The index set a new record as investors focused more on the stock market as Sri Lanka imposed an import ban. The market, which began to grow on May 11, 2020, continued to grow from 17 months to 22 days. The market, which started to rise from a minimum of 3627 points, paused after rising from 9482 points.

But removing the economic crisis, the sustainability of the positive response from the share market has proved to be weak as soon as other economic activity moves, the market appears to be returning to the old rhythm.

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