Communal violence: Sri Lankan stocks drop to near 3-week closing low

Sri Lankan shares dropped to their lowest close in nearly three weeks on Tuesday amid investors’ concerns about communal violence.

The country declared a nationwide state of emergency for 10 days on Tuesday to stop the spread of violence, after clashes erupted between majority Buddhists and members of the minority Muslim community.

“Market came down with investors worried over the government declaring state of emergency,” said Atchuthan Srirangan, a senior research analyst at First Capital Holdings PLC.

“Investors are waiting to see how foreign investors will react to this state of emergency.”

The Colombo stock index ended 0.3 percent weaker at 6,533.46, following a 0.28 percent drop last week.

Turnover was 436.8 million rupees ($2.82 million), less than half of this year’s daily average of 954.9 million rupees.

Analysts said local investors continued to be on the sidelines as they were still worried about political uncertainty.

Foreign investors bought a net 27.9 million rupees worth of shares on Tuesday, extending the year-to-date net foreign inflow to 6 billion rupees worth of equities so far this year.

Shares of conglomerate John Keells Holdings Plc fell 0.7 percent, Ceylon Tobacco Co Plc ended 0.4 percent weaker and Browns Investments Plc declined 7.7 percent.

Sri Lanka’s two key parties in the ruling coalition last week decided to remain in the ruling coalition, allaying fears of a government collapse.

President Maithripala Sirisena reshuffled his cabinet last week, appointing his prime minister as the law and order minister, after the governing coalition suffered a series of defeats in local elections earlier this month.

However, the changes failed to boost the market as the cabinet reshuffle was not enough to address the election defeats, analysts said.