Long term prospective in investing in Sri Lanka is among the most attractive in the Frontier Universe, said Gordon Fraser, Fund Manager, Member of the Emerging Markets Specialists Team, Blackrock.
Therefore we view Sri Lanka as a compelling place to invest on a relative basis but also on an absolute basis and consequently Sri Lanka is a large overweight on our funds, he said.
He was speaking at the Colombo Stock Exchange (CSE) and the Securities and Exchange Commission of Sri Lanka (SEC) organized Investor Forum last Friday (May 30) at the Savoy Hotel London to showcase the opportunities available in the capital market of Sri Lanka.
The forum was organised in association with the London Stock Exchange (LSE) and Bloomberg received an unprecedented response where over 150 fund managers attended the forum.
It is only in the past 18 months that we have put serious capital to work and that is why I would say now is an excellent time to invest in Sri Lanka. I am very positive about the outlook of the Sri Lankan economy; in my opinion the best economic growth stories are very supply side led, here Sri Lanka can excel adding infrastructure where it did not exist before, Sri Lanka is adding port capacity to leverage its position on east-west shipment routes, developing itself into a transshipment hub, and working on more efficient and powerful power capacity these very simple improvements will have a very large impact on the productive potential of the economy, Mr. Fraser said.
When the supply side potential is combined with a favourable economic cycle, it is the best time to invest. After a few years of slow credit growth and lower GDP growth and the necessary depreciation of the Rupee Sri Lanka looks set for an upswing, he said.
With a strong corporate culture and a focus on investors Sri Lanka scores very well. For instance the last time I visited Sri Lanka I had 100 percent fulfillment of my meeting requests that has never happened to me before, he stated.
We find valuations in Sri Lanka quite attractive, for instance banks are a very good prospect. In most other emerging markets you will find that banks have been a good way to get exposure to the economic development of a country over time, so long as they are run prudently, the Fund Manager said.
In Sri Lanka, I think the investment case is even more compelling, penetration of loans stands at just 30 per-cent of GDP, which is well below emerging market norms, and a typical EM country would have 70 to 100 percent loans to GDP. Banks in Sri Lanka trade at cheap multiples, as shown earlier. Therefore in our opinion, banks are a cheap way to get exposure to Sri Lanka’s development, he further stated.
However there are some issues, Sri Lanka has some large twin deficits, and it must be careful to avoid the trap that many other emerging markets have fallen into by becoming dependent on foreign savings rather than domestic savings, to grow, he said.
The more pressing issue for us however is liquidity and despite a plethora of theoretically interesting investments, the list of companies that offer sufficient ownership is fairly restrictive. Liquidity however will improve over time and anything that can be done in this regard will be very welcome, he added.