Sri Lanka’s stock market has reached historic highs in 2025, but the surge is powered almost entirely by local investors as foreign participation continues to dwindle, raising questions about long-term stability and market confidence.
According to the Central Bank of Sri Lanka, foreign investment in the Colombo Stock Exchange has steadily declined during the first eight months of 2025. This withdrawal reflects growing caution among international investors who remain concerned about economic risks, policy uncertainty, and the island’s fragile recovery efforts. Despite this trend, the market has seen record-breaking growth in key price indices, propelled by strong domestic investor activity.
Local retail and institutional investors have dominated trading, providing liquidity and fueling momentum across multiple sectors. Their aggressive buying has pushed valuations higher, keeping the market buoyant despite the lack of foreign inflows. However, with the rapid rise in indices, market volatility has also increased, reflecting speculative tendencies and short-term fluctuations in investor sentiment.
While the Colombo Stock Exchange continues to post record gains, analysts warn that sustained growth will depend on re-establishing foreign investor confidence alongside local enthusiasm. Without balanced participation, the market risks overheating and facing sharper corrections ahead.
