Tourism Insights – Experiential tourisms – Part 2: Is it something worth worrying about?

In this second part of our review of the potential for experiential tourism in Sri Lanka, we investigate the tourism earnings from experiential tourism and ask the question as to whether promoting experiential tourism should be a focus for the tourism strategy of Sri Lanka.

What the Data has to say

Again, turning to the data provided by the SLTDA’s in its latest annual report, here are a couple of interesting insights we discovered from the data:

Earnings growth from Experiential Tourism negligible

The earnings growth from experiential tourism related activities has historically shown a tendency to lag the overall earnings from tourism. As a result, the contribution of experiential tourism to overall earnings has been on a declining trend and by 2015, its contribution was less than 1% of total earnings. However, in 2016 there was a significant jump in tourist arrivals for such activities which contributed towards a 78% growth in earnings from such activities. This led to an increase in its contribution to 1.2% of total tourist earnings.


Sigiriya outpaces other attractions in terms of its earning potential

As we observed earlier with tourist arrivals, where the lion share of arrivals was accounted for by a few sites (Sigiriya and Polonnaruwa in the case of Cultural sites and Yala, Horton Plains and Udawalawa in the case of wildlife parks), a similar trend can be observed with regard to foreign tourist earnings at these sites.

Hence, Sigiriya which accounts for the highest number of foreign tourist arrivals also brought in LKR 2.2 bn in earnings from the foreign tourists, outpacing most other attractions.


But Earnings per tourist is highest for Anurahapura historical sites

Considering the tourist earnings from a per visitor point of view also reveals some interesting insights in terms of the earnings trends of varied attractions.  With regard to attractions in the cultural triangle, it is Interesting to note that while Sigiriya attracts more visitors than Anuradhapura (in 2016 Sigiriya attracted 562 k visitors vs. 77k visitors to Anuradhapura) the per tourist earnings is higher for the latter and in 2015 & 2016 it was the highest when compared with all other attractions.

With regard to nature based attractions, the earnings per tourist at Pinnawala has been fairly unchanged while some of the Wildlife parks have witnessed a moderate improvement. The Colombo Museum too has witnessed some improved earnings though it remains at a much lower level compared to other attractions.



The role of pricing in earnings

This also brings up the question as to whether some of these attractions are priced optimally. A comparison of the significant attractions in Sri Lanka reveal that Sigiriya which is the most recognized and distinct site in Sri Lanka commands a premium which may partly account for it recording the highest tourist earnings. In contrast, the Colombo National Museum is amongst he most affordable attraction.

Source: Leisure Tours


Source: Leisure Tours, attraction websites

Key Question: Should we focus on promoting experiential tourism given the low returns?

Hotel Operators claim that for the vast majority of tourists to Sri Lanka, the main appeal is the Sandy Beaches and tropical climate. Some veterans in the hotel industry have therefore claimed that given this factor, tourism in Sri Lanka should be promoted in accordance with this and be geared towards attracting “Sun, Sand and Beach” tourists. Hence they raise the question of the return on investment in promoting attractions such as heritage, wildlife, nature reserves etc. that fall under the purview of experiential tourism, particularly given the low returns in terms of tourism earnings arising from such activities.

However, we would argue that while the pristine beaches of Sri Lanka maybe the main draw for visitors to the country, if the government is to achieve its objective of increasing the foreign guest nights and the daily tourism expenditure, there needs to be a greater focus on experiential tourism in order to encourage repeat visitors. A recent panel discussion organized by the Hotel association of Sri Lanka highlighted the fact that increasing the number of guest nights in Colombo by even a single day through the promotion of more activities/ points of interest in Colombo can have a significant impact on the earnings from tourism.

In addition, given that most of these sites such as Sigiriya, Yala, Pinnawala that draw many tourists are not contemporary attractions but rather ancient ruins or nature based resources, there is a much greater need to invest in the conservation of these resources. Hence part of the motive for enhancing the earnings potential of such sites should be to better conserve the sites thus ensuring its sustainability for future generations.

Looking at it from a global perspective, we have compared the entry fees of some of the Sri Lankan attractions which are classified as UNESCO World Heritage sites with other similar attractions found abroad and we have observed that the earning potential of these sites are far greater than the current earnings of the attractions in Sri Lanka which indicates that there is greater potential to increase the earnings from these experiences.

Source: Travel & Leisure website

The Bottom line: So what can be done about it?

Taking into account the data that was highlighted with respect to the tourist arrivals and earnings of experiential tourism in Sri Lanka, the key challenge therefore would be to increase the attractiveness and earnings potential of these attractions while avoiding the problems of overcrowding.

Promote more sites to reduce overcrowding at popular sites

It is clear that part of the reason for the overcrowding is that tourists tend to congregate in few locations leading to overcrowding. While from the tourist’s point of view it would be rational for them to focus on the “main attractions” given the limited time, overcrowding at these locations could result in diminishing the experience and attractiveness of a location.  Hence, there is a need to broad base the appeal of attractions that tend to get overlooked in order to reduce overcrowding and facilitate the development of other sites.

Limit number of visitors to enhance earnings

At the same time, in the case of attractions such as the Wildlife parks, Sigiriya rock where there would be stricter limits on the optimal carrying capacity of a location, tighter measures may have to be followed in order to ensure the long term sustainability of such locations. By the use of systems such as timed entry tickets, day/night time entry as well as having a cap on the maximum number of tourists that can visit the site during a day, you can better ensure that the resources of the site are not overtaxed while providing a more pleasant experience for the tourists that visit the site. This would also enable popular sites to possible charge higher entry rates and thus improve the earnings potential.

Improve the accessibility of attractions to limit overcrowding

Incremental investments can be made at selected attractions in order to improve the accessibility of certain sites to accommodate a larger volume and variety of tourists. For example, installing more ticket counters and restroom facilities can reduce the waiting times at attractions which is a key challenge at many locations. In addition, in the case of historical sites such as Anuradhapura and Pollonaruwa, low cost strategies such as having a designated route for tourists to take can greatly improve the flow of visitors and minimize overcrowding.

Create more activities at a given attraction

Incremental developments can be made at certain attractions in order to increase the variety of activities that can be found at the location in order to reduce overcrowding. For example, a lot of the overcrowding in Sigiriya happens at the Lion’s paws where everyone makes a beeline to climb the rock. Instead of restricting the experience of Sigiriya to simply climbing a rock, it can be broadened to include tours of the water gardens and the ancient town, an interactive museum. Walks through the nature reserves surrounding the rock which are filled with wildlife and birds and has the potential for bird watching activities. This would also help improve earnings of a given site as most comparable attractions abroad charge combined ticket prices which gives full access to varied sites in a given location.


Written by :Travis Gomez
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This information has been compiled from sources believed to be reliable but Frontier Research Private Limited does not warrant its completeness or accuracy. Opinions and estimates constitute our judgment as of the date of the material and are subject to change without notice.

Tourism Insights – Experiential Tourism – Part 1: too little or too much of a good thing?

The changing face of tourism in Sri Lanka

Sri Lanka has been experiencing double digit growth in tourist arrivals with over 2 mn tourists visiting the country in 2016. With a target of 2.5 mn arrivals for this year, and a target of over 4.5 mn arrivals by 2020 set by the government, the direction of the government as well as the private sector is that, more is better. At the same time, there has been growing concern with regard to the problem of overcrowding at certain popular tourist attractions in the Island. There have been reports of overcrowding in Sigiriya as well as traffic jams in Yala Wildlife park leading to even animals getting run over (Read More: Daily Mirror). While this has sparked a debate within the industry on what is the optimal balance of tourist arrivals, the overcrowding at some of these cultural and natural attractions indicates a growing interest in what can be termed as “Experiential tourism”

The rise of Experiential tourism

Since independence, the traditional markets of tourist arrivals to Sri Lanka were from Europe (including countries such as Germany, France and UK) where the main attraction of Sri Lanka; as veteran’s in the hospitality Industry would put it; is “Sun, Sand and Beach”. More recently, a shift in consumer preferences is noted with the change in economic circumstances which has led to a growth in arrivals from non-traditional markets led by tourists from India and China, along with growing awareness amongst visitors of the environmental impacts of tourism and the need for sustainability and conservation.  While “sun, sand and Beach” remains a core component of Sri Lanka’s offerings, the above reasons have led to a widening of Sri Lanka’s offerings to include more experiential and culturally rewarding tourist attractions. This could range from taking curated walks in a city’s historic centre, camping outdoors in a bird sanctuary, visiting museums, art galleries etc. to get a sense of the culture of the destination. The Sri Lanka Tourism Development Authority’s (SLTDA) annual report, classifies a number of tourism activities in Sri Lanka as Museums, Wildlife Parks, Zoological & Botanical gardens and the cultural triangle. For the purpose of this analysis, we have treated all of these activities as being part of “Experiential Tourism”.

What the data has to say

Based on the data provided by the SLTDA, here are a couple of interesting insights we noted:

Faster growth in experiential tourists in 2016

The experiential tourist arrivals grew at a rate of 48% YoY in 2016, outpacing overall tourist arrivals growth which increased at a rate 14% over the same period. Visitors to the cultural triangle alone saw a 2.5x growth from 355 k tourists in 2015 to 905k in 2016.


But less than 50% of foreign tourists choose to go for experiential tourism.

While 2016 saw a strong growth in experiential tourism, in the context of total tourist arrivals which stood at 2.05 mn in 2016, the attractiveness of even popular locations is comparatively low. Sigiriya was the most popular attractions with a little over 1/4th of total tourist arrivals in Sri Lanka visiting the site while Yala was the most popular wildlife park attracting 13% of tourists.


Wildlife parks gaining popularity

The proportion of experiential tourists visiting popular wildlife parks such Yala, Horton Plains which are in a natural setting has increased while the number visiting places with “Built-in environments” such as the Pinnawala Elephant Orphanage, the Dehiwela Zoo and the Peradeniya and Hakgala Botanical gardens have witnessed a slower pace of growth and hence a decline in their relative share.


Few sites/activities account for the lion share of the tourist arrivals

In 2016, the two sites; Sigiriya and Polonnaruwa had accounted for nearly 90% of all visitors to the cultural triangle . With respect to Wildlife Parks, nearly 70% of arrivals were distributed among 3 parks while there are 23 locations throughout the island that have been identified by the SLTDA as Wildlife parks. This trend highlights the fact that tourism in Sri Lanka is not sufficiently broad based and to a certain extent explains the issue of overcrowding which takes place at certain popular locations.

Key Question: Is there already too many tourists?

It is clear from the above data that while experiential tourism is has not been as significant in the past, the trend is clearly that it is growing in importance and is expected to continue to do so in the future. Hence a question that can be raised is if given the overcrowding that is taking place at some of these attractions, should attempts be made to restrict tourist arrivals.

To provide some context to this question, we did a global comparison of the tourist arrivals numbers of some of Sri Lanka’s UNESCO world Heritage Sites with some other similar attractions found abroad and we observe that these sites are able to accommodate much larger volumes of annual tourist arrivals.


Source: Travel & Leisure website


Hence, we believe that with proper planning and by increasing accessibility it is possible to increase the popularity of experiential tourism attractions in Sri Lanka while limiting the negative impacts of overcrowding.


In part 2 we will explore the earnings contribution of experiential tourism and give our recommendations on what can be done to enhance experiential tourism in Sri Lanka

Click here to continue to Tourism-insights – experiential tourism Part 2    


This information has been compiled from sources believed to be reliable but Frontier Research Private Limited does not warrant its completeness or accuracy. Opinions and estimates constitute our judgment as of the date of the material and are subject to change without notice.

The Global Economy in June

The major highlights of the month of June were the events that unfolded around the isolation of Qatar by its Gulf neighbors, developments in the oil market and signs that major central banks were beginning to end monetary easing. Despite these developments, global markets continued the upward trend even as analysts continued to raise questions about its sustainability.

The US Federal Reserve hiked interest rates, as expected, on June 14th for the second time this year and signaled that it will start to unwind its massive balance sheet. However, doubts have been raised whether the Fed will go for a third rate hike this year amidst US economic data falling below expectations in the second quarter. Taking cues from the Fed, the European Central Bank (ECB) and the Bank of England have also signaled that they will begin to end the era of easy money. Emerging Market investors are watching this development closely to see how it affects risk appetite.

Emerging markets continued to see positive investor sentiment, as reflected by a seventh consecutive month of foreign portfolio inflows, up to June. According to the Institute of International Finance (IIF), June saw US$17.8 billion in inflows to EM debt and equities, the majority of which went to the Asian region. Volatility in commodity prices, especially oil, did not appear to trouble EM equities. Analysts have pointed to increasing weight of technology shares relative to commodities-based shares in the MSCI Emerging Markets Index as making this possible. However, some have pointed to robust demand for debt from Russia, Argentina and Ivory Coast as evidence of an investment bubble in high yielding EM assets.

China’s A-shares were finally able to gain entry to the MSCI Emerging Markets Index, from next year. China also opened up its US$9 trillion debt market to foreign fund managers through its new ‘Bond Connect’ service through Hong Kong. Meanwhile, India finally put into force its new Goods and Services Tax (GST) on the 30th of June, promising to simplify the country’s tax regime.

In Europe, Brexit negotiations got underway, while Prime Minister May managed to come to an official agreement with the coalition partner from Northern Ireland. The coalition gives her government a slim majority in parliament. Despite some stability in the parliament, the British economy showed signs of trouble as consumer spending dipped considerably for the first time since Brexit. The Sterling pound also continued to remain weak.

Brent oil prices were rather volatile in June, seeing a drop to the mid-US$40s on fears of a rising supply glut amidst increased OPEC output in May. Despite an OPEC agreement to limit production, the countries excused from it – mainly Nigeria and Libya – have continued to increase output. However, as of the first week of July, prices saw seven consecutive days of gains, rising to near US$50 due to a slowdown in the growth of the US shale oil sector, reduction in US crude oil reserves.  But analysts do not see any support from fundamentals for a sustained rise, reflected in the sharp drop seen on July 5th to US$47.79 a barrel.

The situation over Qatar’s isolation by its Arab neighbors did not have a major impact on oil prices. While the risks of the escalation seem to have reduced, analysts say the crisis is likely to be protracted in its current form. The Saudi-led coalition sent a list of 13-demands, which included ending relations with Iran and shutting down Al Jazeera. Despite Qatar’s rejection of these demands, the Saudi-led coalition have not yet taken any retaliatory measures, raising hopes of the tensions gradually easing out.

The Global Economy in May

The month of May was characterized by political risks affecting markets. Scandals over Russian involvement in the Presidential election and the removal of the FBI director affected the Trump administration, with some politicians even invoking calls for impeachment of President Trump. However, major US equity benchmarks continued their upward movement with only minor impact from the political scandals. Some argue that this is because the ‘Trump Trade’ has been replaced by a liquidity trade fueled by rising inequality and higher profits for firms.

Amidst its usual political uncertainty, emerging markets continued their positive run so far this year, raking in over $20 billion in non-resident portfolio inflows for a third consecutive month in May according data from the Institute for International Finance (IIF). Data from IIF and Dealogic point to over $100 billion in such inflows so far in 2017, driven by nearly $100 billion in sovereign debt issuance by EM countries in the period. EMs were, however, affected by Moody’s downgrading of China’s sovereign credit rating and the fresh political scandals affecting Brazil’s President Temer. Analysts have begun to throw into doubt the sustainability of the EM’s bullish run, citing high valuations of equities and the upcoming US interest rate hikes. In the meantime, Frontier Markets seem to have gained investor interest in the first few months of the year, with increased fund inflows, fueled by political uncertainties elsewhere.

In Europe, markets did celebrate the victory of Emmanuel Macron over the populist Marine Le pen, but now the question remains how he will use a probable parliamentary majority to push through his ambitious reform promises. It is a question well highlighted by the delays facing President Trump’s reform agenda, despite having a republican majority. However, Europe continued to face a number of uncertainties, including the continuation of the European Central Bank’s debt buying program, overcoming Italy’s banking sector problems and finding a suitable compromise with the Greek government on its debt repayments.

But after the June 8th general elections, the future of the Brexit negotiations in the context of a hung parliament in Britain is going to be a major uncertainty. The Conservative Party’s coalition partner, the Democratic Unionist Party (DUP) from Northern Ireland, is likely to push for a ‘softer’ Brexit. The situation is also likely to make the Sterling Pound volatile, after losing  its gains over the last two months on election night.

Oil prices reduced from its mid-$50s height to below $50 during the month due to doubt over the OPEC’s production limitation agreement. Prices did rise as the agreement’s extension to March 2018 came to being, but the market was not impressed by it. Analysts were concerned that oil markets are headed for a supply glut despite the OPEC agreement. Prices have dipped below the $50 mark by early June, helped by the isolation of Qatar by Gulf states led by Saudi Arabia, which could unravel the OPEC agreement.

The Frontier Fitness Week

It’s been just over a year since we started our Fitness Initiative (which you can read about here). How did we do so far?

Well, in a word, meh.

Wait, let us explain…

Initially, team members were encouraged to start activities that contributed to their fitness and they did! Several team members joined gyms, took up yoga or just started walking more.

Day 2: We went Cycling/Running

But we believe that no one likes to be forced to do something they don’t want to do and when they are the results are, generally, not great.

So, we put it to the team. We asked each team member if they’d like to “opt-in” for our fitness initiative and this worked out better than expected – only one team member opted out.


Working together vs. working alone

Things were moving (get it?), just not enough – and we think we figured out why.

Yes, all team members were encouraged to start some fitness activity individually, but that takes a lot of motivation and effort. We decided to try out group activities, where the team could share each other’s motivation and get moving! (A little bit of friendly competition didn’t hurt either!)

Day 3: More Badminton!

We started small, scheduling weekly walks/runs (again, attendance was voluntary). While motivation was lacking, we figured what you won’t do for yourself, you will do for others. In that light, we asked the team to use our weekly walks as “training” for an upcoming charity run.

This worked out initially, but attendance waned after the charity run passed. We realized that walking wasn’t the kind of exciting “sport” that had people raring to go each week. So, we decided to get a few more options by calling for suggestions from the team. After too many a few anonymous internal surveys, we had a list of activities that the team would like – ranging from badminton and football to cycling and Zumba.


Day 4: Because no one wanted to take pictures at Zumba

Enter the Frontier Fitness week.

We decided to try a few of these activities, over the course of a week, during the holiday period in April. As an incentive, we decided to treat all qualifying team members to an unhealthy pizza extravaganza a dinner at the Hilton and with a walk around the Colombo Fort area. How do you qualify? Well, here were the rules:

  1. There will be 5 core activities. Team members need to attend at least 2 of these to qualify.
  2. If at least 3 team members attend all 5 (only one of us did), they would get another treat.
  3. Team members are free to organize their own activities as well.
  4. Each activity needs a minimum of 3 team members to qualify.

Overall, the fitness week was a success!

We played badminton on two days, went cycling, took yet another walk and even tried Zumba! Badminton took the cake, in terms of attendance, but cycling and Zumba were rather popular as well.

Day 5: Rounding it out with a jog!

The fitness week gave us a better understanding of the types of activities the team prefers and has really helped us plan out our future fitness activities (we’ve sprinkled in a few Badminton games amidst all the walking now – #progress).


Health is more than just exercise!

We also broadened our vision from just fitness/exercise to overall health. In that respect, we partnered up with Hemas. In case you haven’t heard, Hemas recently released an online “Wellness” platform – offering everything from medical checkups to activity tracking on one platform, with a monthly subscription. We’ve been using the said platform for a few months now and, while the activity tracking hasn’t kicked off with us, we recently concluded our first medical checkup through the platform and came away rather satisfied.


That’s it for now. Stay tuned for our next update on the Frontier Fitness Initiative!


The Global Economy in April

April was characterized by geopolitical tension triggered by tensions between the US and North Korea as well as in the Middle East. Following the chemical weapons attack which killed dozens of people in Syria, the US launched an airstrike on the country in early April. This put a strain on Russian-American relations as Russia denounced President Trump’s decision to use force in Syria. The following week the US dropped its most powerful non-nuclear bomb targeting an ISIS controlled area in Afghanistan.

Tensions between the US and North Korea escalated during the month with the latter launching ballistic missiles twice. Even though both missile launches failed, it was viewed as a “provocative action” by the country. This led the US to retaliate by taking steps to increase its military presence in the region including staging large military drills with South Korea and Japan. These military interactions in the region caused tensions to rise between China and South Korea as well with China objecting to the deployment of an anti-missile system in South Korea by the US.

Concerns over global trade arose after the Trump administration announced the draft of an executive order withdrawing the US from NAFTA (North Amercian Free Trade Agreement) and after President Trump threatened to renegotiate or terminate the free trade deal with South Korea. However, the administration backed down on its decision to withdraw from NAFTA and later announced that it would look to renegotiate the deal.

In the UK, Prime Minister Theresa May announced an early general election to be held in June this year – 3 years before it is due. Analysts point out that this is a step taken by the PM to ensure strong parliamentary support in the Brexit negotiation process.

The geopolitical tensions in the Middle East buoyed oil prices in the first half of the month. However, increasing US oil production and doubts over an extension of OPEC production cuts weighed on prices in the second half.

The Story of Time Twister

We are on a mission to solve your “No time” problem and here’s how Time Twister became one of the solutions!

Before Time Twister..

Our team members would spend an inordinate amount of time searching for up-to-date news on the latest Economic, Financial and Political developments, which is a key aspect of any research based firm. Every team member at Frontier used to go through several news sources individually for very similar information, which, in retrospect, was not the best use of our time as a team.

The early days..

We set up a system for some team members to browse through a few critical news sources which were then categorized and prioritized. The news was compiled into a newsletter which was then shared via email with the rest of the team. Interestingly, it was initially called “Amal’s Daily News Update”.

Some fine tuning required..

The email newsletter was a hit, and we started introducing it to our close friends and clients. We received great feedback, which helped develop the product to what you see today. Some of the critical changes that were done include:

Expanding our sources – We found out that many of our clients are starved for information and like to see different perspectives on news stories. Hence our Time Twister newsletter provides an exhaustive coverage of the Economic and Financial market related news which includes almost all the English language Sri Lankan news sources. Recently we started monitoring a few key Sinhala and Tamil newspapers and translating them to be included in the following day’s edition of Time Twister.

Early Delivery time – All our time twister news products are ready and waiting in your inbox by 8 a.m. which is one of its most appealing factors for its readers. We even have an “Early Daily Time Twister” which is sent out before 6 a.m. for those clients who prefer to get a head start on the news

Customization – We learnt that different readers have different information needs. Some like it in one long email, others prefer it broken up in different ways, others would like it only when travelling. We cater to all of these, allowing users to select which flavor of Time Twister they like best.

Time Twister Now..

While our news products may have changed and become more diverse since the days of “Amal’s Daily News Update”, our mission to filter out the noise and give you the most important news in a timely and convenient manner is unchanged.

We call it Time Twister because of its core purpose of saving time. But the name is also reflective of how we “twist” work hours, well away from the norm, to bring you Time Twister as early as possible each day.

‘Science’ (you can call it pseudo-science if you like), has it that human beings function best at different times and, for some, these times are not the usual working hours.

There are what you call Larks, who are morning people, and Owls, who work best at night and are next to useless in the morning.

Time Twister is a product where Larks and Owls make best use of their work-time differences to add value to clients.

Time Twister in numbers..

8 Time Twister team members ensure that you get the news you require, delivered to you 7 days a week, 365 days a year.

1 of them stays up late to capture comments on equity forum discussions, 2 others are up as early as 4.00 a.m. to get the basic version of Time Twister ready, and 2 others are ready at the considerably less peculiar time of 6.00 a.m. for a final source check and update. To ensure that we can overcome any hiccups, we even have 1 person acting as the ‘back-up’! We also have 2 additional team members taking up duty during the weekend to give the rest of the team a well-deserved break.

Looking to the future….

The good news is that we’ll keep improving, taking feedback from team members, clients and friends. Feel free to send us an email or give us a call if you have any suggestions.

The Global Economy in March

Global markets in March were characterized by the impact of the US Federal Reserve (Fed) rate hike, the stalling of the ‘Trump trade’ as healthcare reforms failed in the US Congress and the continuing inflows to Emerging Markets. While the rate hike by the Fed was much anticipated by the markets, it turned out to be less hawkish than expected. Despite the positive US economic data, the Fed retained its outlook at two more rate hikes for 2017.

Emerging Markets ended the first quarter on a high note with sovereign bond sales rising to a record $69.6bn, according to Dealogic, a global research firm. The net value of emerging market fixed income debt held by investment funds also rose to a record of about $350bn at the end of March, according to research group EPFR. The MSCI Emerging Market stock index is up 11.4% the first three months of the year, its strongest quarter since the start of 2012. A weaker dollar also helped emerging market currencies to record their second best quarter since 2012. The data illustrates how investor sentiment has stabilised since the early weeks of President Trump’s tenure in the White House, when his protectionist policies sparked an emerging market sell-off.

The policy promises of President Trump have involved tax cuts and an economic stimulus package that drove the ‘Trump-trade’ –  the post-election rally in US equities. However, the last month saw that rally slowing down over doubts of the administration’s ability to find support in the legislature to push through such policies. The doubts were heightened by the failure in Congress of the healthcare bill, meant to replace ‘Obamacare’.

The post-election US equity rally driven by the new administration’s promises on tax cuts and economic stimulus slowed down in March. The slowdown came as the failure in passing the new healthcare bill in the Congress cast doubt over the administration’s ability in delivering on these promised stimulus.

Elections proved to be positive for markets in March, with the ruling party managing to hold off populist competition for first place at the Dutch elections and Modi’s BJP managing to win overwhelmingly at the Uttar Pradesh state elections. Markets were relieved by not having to deal with another populist win in the West, while celebrating the confirmation of PM Modi’s political capital for economic reforms by accelerating inflows to Indian stocks and bonds. However, last year’s Brexit vote returned to headlines as the British PM officially triggered the two-year process of leaving the EU on the 29th of March, as promised.

Oil prices reversed some of the gains made since the last quarter of 2016, even bringing to question whether it has sufficient support to stay inside the $50 mark. The fall in prices was mainly driven by an increase in US oil production, which offset the effects of the OPEC’s production limitations. The downward pressure on prices has prompted the OPEC to consider extending the limitations beyond June. This helped prices settle within a $50 to $53 range by month end.

The Global Economy in February

Global markets in February were characterised by the – sometimes uncertain – policies of the Trump administration’s first month in office, the chances of the US Federal Reserve (Fed) hiking rates in March and the surge in foreign inflows to Emerging Markets (EMs). The US equity rally stalled initially on fears the administration was losing focus on the promised tax cuts and fiscal stimulus which drove the post-election rally. The President’s March 1st speech to Congress allayed these fears somewhat but finer details are yet to emerge.

For most of February the market seemed to price in a less than 50% chance of the Fed hiking rates in March, mainly due to 2016 record of constant postponement of rate hikes due to external risks, like Brexit. But with Fed officials speaking confidently about a hike, driven by a better global outlook, those chances have been increased to around 80%.

Despite speculations over Fed rate hikes, February saw a continuing surge in foreign inflows to EM stocks and debt. According to data from the Institute for International Finance (IIF), which tracks capital flows, February saw $17bn, in cross-border flows to EM assets with $6.2bn going to equities and $10.9bn to bonds. Analysts say that foreign funds have been attracted mainly to Asian economies with healthy current account surpluses and foreign exchange reserves. The inflows have been aided by a weakening of the US dollar from its post-election highs, partly due to uncertainty over Trump administration policies.

Meanwhile, Europe saw market jitters over the increasing chances of populist Marine Le Pen winning the French presidential elections, due to a series of unexpected events that have affected the mainstream candidates. Chief among these was the nepotism scandal involving centre-right candidate Francois Fillon and his wife. The concerns surrounding Le Pen is that she promises to remove France from the EU, institute a new French currency and redenominate French debt in this new currency. Thus, European debt markets have been jittery, with concerns of a rekindling Greek debt crisis and uncertainty in Italian politics adding in.

Oil prices were largely range bound in the mid-$50s. Price movements within the range were prompted by confirmation of a 90% compliance rate with the OPEC output limitation agreement and rising US shale oil output. Data has shown that the number of shale oil rigs is on the rise and the supply glut is persistent with record US crude oil stockpiles recorded in the month. Last week saw market concern over data showing Russia’s compliance to output limitation amounting to only a third of its promised 300,000 barrels per day.

The Global Economy in January

Global markets were marked by concern over the policies of President Donald Trump, with signs that the post-election rally in US equities was slowing down. This was even while there was euphoria over the Dow Jones index reaching the record 20,000 level for the first time on January 25th. Markets are concerned that with the recent executive order putting a moratorium on entry into the US for persons from seven majority-Muslim countries, the Trump administration might be expending political capital that could otherwise be used in getting through the promised stimulus package. The US Dollar has descended from its 14-year high, while US Treasury yields have also dropped from the record highs seen towards end-2016.

The uncertainty in the US markets have helped Emerging Markets regain the loses made in the aftermath of the surprise election of Trump in November. Russia and Brazil have seen both their stocks and currencies make gains in the month, helped by the rally in commodity prices, especially oil. However, there is a concern that Trump might persevere with his promises of protectionism, after he formally withdrew the US from the Trans-Pacific Partnership (TPP) dealing a heavy blow to prospects of free trade. This has allowed China to appear as the major proponent of global free trade, with President Xi coming to its defence in his first ever speech at the World Economic Forum in Davos.

However, China has taken renewed efforts to curb capital flight and help prevent a further slide in the yuan. These efforts have even come to affect China’s trade flows, with increased difficulty to furnish payments for imports. Thus, some analysts see China entering a new era of isolationism; far from being ready to take up a role as the leader of global free trade.

Meanwhile in the UK, Prime Minister Theresa May laid out, in a much-anticipated speech, her government’s plans on Brexit. It involved optimism for a good trade deal with the EU and a promise to give parliament a vote on the final deal reached, but there is no clarity as to how such a deal might be achieved. Analysts are concerned that Britain’s post-Brexit economic resilience might come to an end as consumer spending shows signs of slowing down.

OPEC has surprised analysts by sticking to its output limitation quotas, that came into force on January 1st, with some members like Saudi Arabia and Kuwait even reporting output cuts deeper than promised. This has helped oil prices to continuously hold around the mid-$50s. However, the uptick in prices has encouraged US shale oil production to increase and there is concern that OPEC cuts will be offset by increased production in the US.  In the past week, prices have also been pushed up by concerns about tensions between USA and Iran, with a new set of US sanctions being imposed in response to Iran’s ballistic missile tests.