Sri Lankan stocks may offer better returns as the end of the 26-year war frees up government spending for investments in infrastructure and agriculture, reported Bloomberg Press quoting prominent American investor and financial commentator based in Singapore ,Jim Rogers, in a report on current economic trends in Sri Lanka.

Bloomberg also says the Sri Lanka’s benchmark index has gained 33 percent in the past three months, the second-best performance worldwide as the army defeated the LTTE in May.

“This is a structural change for the country,” said Singapore-based Samir Mehta, a fund manager at Silver Metis Capital Management. “If the political process of integrating the Tamils is handled well, the economy could grow at above 10 percent per annum for the next decade.”

The Central Bank of Sri Lanka raised its 2009 growth forecast to as much as 4.5 percent in July from an earlier estimate of 2.5 percent after the separatists’ defeat. Sri Lanka plans to raise $500 million from overseas investors to help rebuild the nation, the report said.

‘Capital is Ready’

“The capital is ready for coming into the country,” said deputy chairman of John Keells Holdings Plc, Ajit Gunewardene. “I don’t think there is going to be a shortage of investors.”

The hotels may be fully booked from December to April due to tourist’s arrival, he said. Tourist arrivals in Sri Lanka grew 8 percent in June, the first increase this year, according to the monthly statistical bulletin by the Sri Lanka Tourism Development Authority.

John Keells, which gets about 49 percent of its revenue from transport and tourism, has gained 69 percent in Colombo trading since the war ended May 16. Other stocks have more than doubled, including Ceylinco Housing & Real Estate Co. and Bogawantalawa Tea Estates Plc, leading a rally that has made the benchmark index Asia’s second-biggest gainer after Indonesia.

Trading on Sri Lanka’s $7 billion stock exchange, Asia’s smallest, jumped fivefold in May, and average trading increased to 751 million rupees ($6.5 million) from 147 million rupees in April, according to CT Smith Stockbrokers in Colombo.