Lower commission on share trades will attract more foreigners
View(s):Liquidity is the biggest issue hindering more foreign investments to the Colombo Stock Exchange (CSE), but the CSE can follow a few steps to attract foreign inflows, a top foreign fund manager says.
Outlining what can be done, next generation emerging fund, Tundra Fonder AB Founder/Chief Investment Officer Mattias Martinsson told the Business Times that comparative to the region the commission that CSE charges on trades is higher at 0.64 per cent per trade, and if this is reduced more block trades of say US$50,000 will be more attractive to foreigners. While advocating a free float, he said it’s an important step, but was doubtful on how far it’ll carry to enhance CSE’s liquidity.
Low liquidity remains the main constraint for foreign investors with CSE’s $5-10 million against Pakistan’s ($50-200 million), Bangladesh’s ($50-150 million) and Vietnam’s ($100-400 million). Mr. Martinsson was in Colombo to attend the ‘CSE – Tundra Fonder Sustainability Forum’ which the CSE in collaboration with Tundra Fonder hosted on Monday.
Tundra Fonder has $400 million in assets under management and $150 million is in its Frontier Sustainability Fund, which has invested $20 million (12 per cent) of the fund portfolio in Sri Lanka. Mr. Martinsson noted that enhanced liquidity will see them focusing more on the CSE. He said that Tundra emphasises on Environmental Social and Governance (ESG) standards and Socially Responsible Investing (SRI) which are growing at over 16.5 per cent a year, over twice the 8 per cent rate for other funds.
He said that 37 per cent of asset growth during 2012-2016 came from SRI assets and that SRI assets grew by twice the rate of conventional assets during 2012-2016 “and the growth will accelerate”. He added that since autumn 2016 all Tundra’s funds are screened for violations of international conventions (guidelines from UN Global Compact, OECD, and ILO) and they focus high on this aspect.
“We have an in-house ESG research team and external screening consultant.
There’re two dedicated analysts working exclusively with ESG analysis where they communicate with all portfolio companies and we focus on a systematic, scientific and thematic approach.”
He said that the advantages of Sri Lanka is that it has the second highest literacy rate next to Vietnam, a great location, next to India, and a trade hub with Colombo Port expansion and Hambantota Port coming up. “We, sometimes, refer to Sri Lanka as ‘the next Singapore’ with its strategic location outside of India, increased investments in ports and industrial zones as well as a rapidly expanding service sector especially with the upcoming Port City,” Mr. Martinsson added.
He added that Sri Lanka has a functioning political set-up, good balance between state responsibilities (schools, infrastructure) and private initiatives in which there’s a services-driven economy with great potential in tourism and trade. “Tourist arrivals increased from 0.5 million in 2008 to some 2 million in 2017, adding now 4 per cent of GDP. Maybe you should add an international airport in the East and maybe one in the South in order to attract more tourists.”
Also India’s lack of deep sea ports makes Sri Lanka ideally placed to take advantage of growing Indian trade and infrastructure investments allow for connectivity across the island, he said. “Currently Colombo still constitutes majority of GDP which should change with more infrastructure projects eleswhere in the island.”
Tundra has invested in firms that are in sectors that’ll outgrow the economy, according to Mr. Martinsson. “We want to put cash in firms that have simple stories, but with impetus to grow.”
Tundra Frontier increased their holdings in Access Holdings in 3Q18 while the Tundra Sustainable Frontier Fund has a position in Nestle Sri Lanka.
Tundra’s new holdings in Sri Lanka include two banks, Commercial Bank and Hatton Bank. Tundra Frontier Opportunities Fund entered the top 20 shareholders at Cargills Ceylon in 3Q18. According to Tundra, Cargills and Nestle Lanka inched up 11 per cent each on positive result expectations.