Business Times

Western crisis will propel foreign funds into SL

By Duruthu Edirimuni Chandrasekera

The continuous slowdown in western economies will propel hitherto unprecedented investment from those countries into emerging markets such as Sri Lanka, analysts say. “The recession is expected to drag on for a while and their markets are recovering but very slowly. Fund managers are already strongly looking at Asia for their investments,” Dimantha Mathew, Analyst Capital Alliance noted.

Slump in the West will drag
Sarath Rajapakse, Director Capital Trust Securities noted that many leading western analysts expect the recession in the West to drag on for quite some time and they expect the western markets to collapse very soon. “This will prompt foreign fund managers decamping from their traditional playgrounds to come in hordes towards the emerging markets such as ours in the near future,” he added.
However some say that their ‘rushed’ entry into this market is doubtful.

Lanka is not cheap
“Whether this will result in heavy foreign inflow into Sri Lanka is questionable as currently out of the emerging markets we are one of the more expensive emerging markets because of the bull-run in the stock market,” Mr. Mathews noted. According to statistics the Colombo stock market has grown 23.9% during the past month whilst the year to date growth has been 78%.

Sanjitha Rajasekaran Manager- Research, Asia Securities (Pvt) Ltd noted that with the end of the conflict in May 2009 there has been enormous interest from foreign funds. “With the changed outlook and risk profile of the country and economy, many foreign fund managers have already marked their presence in the local market. Though the year to date foreign interest is a net outflow of US$123 million which could be due to them booking their profits, we believe there will be significant interest from foreign fund managers in the future,” she said.

Speculation there, but fundamentals still at work
She noted that though there has been speculative trading in certain counters there has been significant interest in the fundamentally strong counters as well. “There has been occasional profit taking on certain counters however with the positive outlook for the economy coupled with higher corporate earnings, the sentiment has been buoyant,” she said, adding that most sound counters (when considered valuation wise) also have grown significantly during the past few months.

Thakshila Hulangamwa, Vice President Asha Phillips also has the same sentiments in that he said the slowdown in the European economy would certainly prompt the investors to look at alternative locations.

Banking and tourism hot right now
“Looking at Sri Lanka as an option is something that they will have to consider as we’re one of the best performing emerging markets and the positive outlook of the economy with healthy earnings forecasted in almost all sectors would be of interest,” he said.

He said that the banking sector will be promising in an emerging market. “Also the hotel sector that is coming out of the shambles and the arrivals that shot up 100% just after the 30 year war is one main attraction,” he added.

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