‘Investor interest will improve if ‘war risk’ label is removed’

Hiran H.Senewiratne

Investor interest will improve gradually in Sri Lanka if the “war risk” label is removed. If other countries remove the risk premium to the levels of Thailand, Indonesia and India it will help Sri Lanka to attract more investors, said Managing Director Ceylon Asset Management Dulindra Fernando.

“Despite a continued “terrorism risk” many analysts also expect Sri Lankan legislators to enact a power sharing proposal offering extensive devolution to the provinces during the year. This will help undermine support for militancy and create the conditions for long-term capital to enter the Colombo Stock Exchange (CSE),” he told Daily News Business.

According to Fernando, the Stock Market can free itself from the ‘war risk’ and perform normally as other Asian markets during the latter part of 2009.

The current decline of global equity markets will create a drag on the CSE as foreign investors’ cash out profits to remit funds back home to cover losses and urgent bank commitments. Further, local exporters will also experience declining profitability during the year, he said.

“If Sri Lanka can manage the security risk effectively and develop national infrastructure, we have the opportunity to emerge as a unique success story for investors, while the entire world experiences a decline,” Fernando said.

He said the economy has several developed, world-class industries such as Tea, Tourism, Apparel, Ports and Logistics in addition to a mature banking sector and an agricultural base lead by the plantation sector.

Except for the apparel sector, all other sectors are well represented on the CSE. The Sri Lankan equity market has bolted off the blocks to become the Top performing equity market in the world, as at January 26, with a performance of 20.96% (ASPI). The Milanka Price Index has grown 24.01%. Chile’s IPSA Stock Market Select Index follows with 9.83% and the Shanghai SE Composite Index (China) is third with 9.33%.

The recent initiatives to introduce derivatives by the CSE and the SEC are indeed well timed, for Sri Lanka.

It will create a platform for several new products and risk management tools to enable Sri Lankan equity markets to develop rapidly.

Fernando said in the longer term, Sri Lanka has the opportunity to emerge as a regional shipping, leisure and investment hub for South Asia, as the only politically neutral country in a divided region.

Investment invariably contains risk but in the new reality of Sri Lanka, the long-term risk of not being invested in the Stock Market is greater than short-term risk of volatility for an equity investor.

Sri Lanka has all the ingredients of a compelling investment prospect this year, he said.

Ceylon Asset Management Co. Ltd, manages two funds (Unit Trusts), licensed by the Securities and Exchange Commission of Sri Lanka (SEC).