Focus on SME in capital markets; don’t concentrate only on the rich, Harsha says
Minister of Finance Ravi Karunanayake
Stock exchanges always develop instruments for the rich, for those who can invest millions but pay little attention to the small and medium enterprises or create a market where, various investors are able to invest, an economist and deputy minister says.
“This is why we need to cooperate and create these various asset classes and present South Asia to the world as a unified whole that also serves the bottom of the pyramid. We also need to compete amongst ourselves. I do not think that the extremes can compete, however markets of similar size can,” Deputy Minister of Policy Planning, Economic Affairs, Child, Youth and Cultural Affairs Harsha De Silva told a gathering of capital marketers on Monday. He was attending the South Asian Investment Conference (SAIC), organised by the Colombo Stock Exchange (CSE) in association with the South Asian Federation of Exchanges (SAFE).
“All of us in the SAFE (South Asian Federation of Exchanges) are facing similar situations as developing countries with the need to eradicate poverty and create a strong middle class,” he added.
It was said that South Asia has emerged as the second fastest growing region in the world, with predicted growth rates of 6 to 8 per cent to be continued for another 10 years. “Confidence of the investors will rest not only on growth rates, but also on market integrity, good governance and transparency coupled with political stability and the political will to embrace foreign investment with the right spirit. All such ingredients are abundant in the current political regime in power,” Minister of Finance Ravi Karunanayake told the same meeting.
He said that in comparison to some of the capital markets in Asia, Sri Lanka could be termed as small but the qualitative aspects and the investment options in existence could give it the edge over other markets in what was recently named the fastest growing region in the world.
“The confidence of investors will rest not only on growth rates but also will be based on market integrity, good governance and transparency coupled with political stability and political will to embrace investment with the right spirit,” he added.
Robust status
Minister Karunanayake also stressed that the Government has committed itself to strengthen the revenue from the country’s capital markets to ensure good governance and transparency and that he hoped that the positive aspects of the good governance emanating from the highest levels of governance of Sri Lanka will cascade down to all parts of society and all institutions including the CSE.
He added that this focus on good governance and transparency by the new regime would encourage extended global participation and assist in improving the country’s position in the global rankings.
He also said that the CSE had performed comparatively well last year and according to Bloomberg was ranked the fifth best performing market in the region and the sixth best in the world market. “It could be said that the present economic climate is equally good or better than our climatic conditions which are envied the world over,” he added.
A top capital market expert said that international investors who have been viewing this market cautiously as a risky investment have now changed their minds.” All international investors now want to come to this part of the world, mainly because of high growth and the possibility of diversification. Therefore, I think we have a great opportunity to take SAFE to a different level. This conference which is aimed at exploring the true investment potential of our region is a relevant forum to highlight the combined strength of South Asia. The conference has looked at the development of new products, and towards bringing diversity in investment choices to international investors,” Chairman of SAFE and Chairman of CSE Vajira Kulatilaka said.
According to a top CSE official, the Colombo exchange will be rolling out several strategic plans to increase its market capitalisation from US$ 23 billion to $50 billion in the next three years. “This will be achieved by encouraging government entities, BOI companies and private sector companies to be listed in the CSE,” CSE Chief Operating Officer (COO) Renuka Wijayawardhana told the SAIC gathering.
Today the CSE’s contribution to the national GDP is 36 per cent while some other countries its contribution to the GDP is 100 per cent. “With the increasing number of new listings the market capitalisation could be increased to $50 billion,” he said, adding that last year the CSE was able to touch Rs. 3 trillion market capitalisation, which was first time after 2012. He added that with the new trends in 2014 and 2015 several companies raised capital through the CSE, which has an increasing trend now with new listings. According to him, due to a rise in liquidity level in the CSE last year the foreign investor participation has also risen.
He added that in 2013/2014 huge funds raised through the capital market by various entities listed in the CSE and also new listing totalled were Rs. 94 billion in 2013 and Rs 65 billion in 2014, respectively.
According to him, the CSE has drawn up plans to improve the liquidity in the market by improving the infrastructure level technology in the system.
“Therefore with these new developments we have taken action to introduce a new IT based upgrading system to the market. The new generation automated trading system and risk management system will be on par with other developed dices in world,” he said, adding that the CSE is now in the process of introducing a debt securities trading system for trading of fixed income securities.
The SEC has identified the major legal changes and is in the process of fine-tuning the amendments to the SEC Act in order to keep up with the changes in capital markets and global best practices, a top SEC official says.
“Demutualisation of the (CSE) has been in the air for a long time. I am indeed pleased to note that the Demutualisation Bill in the process of being finalised and is awaiting to be enacted into law by Parliament, hopefully in the not too distant future,” Thilak Karunaratna, Chairman SEC said.
The SEC has identified the importance of introducing a CCP system to mitigate risk in the capital market, he said, adding that the SEC, Central Bank of Sri Lanka (CBSL) and CSE are jointly working towards making this a reality. “A consultancy firm specialising in capital market related assignments globally has been entrusted to do a consultancy and provide management services for the project. I wish to reiterate the importance of formulating a joint regulatory mechanism while safeguarding the sovereignty of the respective nations and unique characteristics in each of our markets.” He added that joint initiatives should be taken to address overlapping concerns and interests. “This might be a tedious task as each of our markets is at different levels of development, yet not impossible.”
He said that there is systematic surge in the region towards a greater degree of economic integration in the real sector through bilateral and multilateral trade due to geo political reasons and the wealth of the nations shifting from the West to Asia.
India is projected to outperform China economically and socially. “As we are aware the real economy is a mirror image of the financial economy. Thus substantial economic progress will be accelerated only when integration in the real and financial economy develops hand in hand. On that note the forum is seen as a timely initiative.”
Traditionally capital markets are considered as powerful engines of economic growth that mobilise savings towards productive corporate financing, he said, adding that the role of financial markets have evolved further with free flow of capital, financial deepening and financial innovation. “For an example it is used in the process of financial state crafting, directed at exercising soft power across countries and regions.”