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Wednesday, January 22, 2014 - 05.31 GMT

Is Sri Lanka the new investment darling?


Should Sri Lanka's market be on your radar after its strong start to the year bucked the downtrend in most emerging markets?
"We have seen inflation at the lower levels. We have been seeing the growth at the right levels. We have seen the external sector coming back to fairly robust level. So all those gave us the confidence that we were on track to having inflation at lower levels in the future," Ajit Nivard Cabraal, the Governor of Central Bank told CNBC.

He expects the economy will grow around 8 percent in 2014, citing two major developments: the end of the war in 2009 and the repositioning of the economy toward services.

“We have developed our infrastructure, particularly the ports and airports, which means our services have now improved quite dramatically. And we are seeing the services sector, particularly the hubs we are looking at -- maritime, aviation, knowledge, activities as well as the commercial and energy -- all now contributing a lot more to our economy than they did in the past," he said.

The stock market itself is working to attract more foreign investors, embarking on development initiatives, including requiring listed companies to keep more of their shares available for trading, as well as improving broker infrastructure, strengthening regulation and developing the corporate bond market, Rajeeva Bankaranaike, the CEO of the Colombo Stock Exchange, told CNBC.

He believes his market offers a lot of value for investors.

"It's the growth story," he said. "Some of these sectors are trading at deep discounts. Particularly in the Sri Lankan economy, we have some of the growth sectors very well represented and these are trading at deep discounts to the market P/E (price-to-earnings ratio)," he said, citing the construction, energy, property and manufacturing sectors.

Investors are responding to the lure.

"We are positive on the outlook for equities in the current year," said John Keells Stock Brokers and CIMB in a note, citing an improved earnings outlook and expectations lower rates will spur more funds toward the stock market. They expect the All Share Index will rise at least 15 percent this year, with scope for earnings multiples to rise along with earnings growth, which it estimates at around 15 percent for the year.

"As Sri Lanka comes out of its tightening cycle there is also an extremely strong pipeline of private investment into leisure and property megaprojects over the next five years, unprecedented in their scale and scope in Sri Lanka which should significantly improve sentiment."

To be sure, the view on the market isn't universally positive. HSBC only rates the market at "neutral" in its frontier market coverage.





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Last modified: January 22, 2014.

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