Tuesday, January 26, 2010



Jan. 26 (Bloomberg) -- Sri Lankan stocks are poised to extend last year’s record gain no matter who wins today’s election, as the end of the 26-year civil war and rising corporate profits bolster the economy, according to the nation’s largest non-government investment fund.

NDB Aviva Wealth Management Ltd. predicts the Colombo All- Share Index will advance 25 percent this year after a gain of 125 percent in 2009, the best performance among equity indexes tracked by Bloomberg worldwide after Russia’s RTS. Sri Lanka’s market, with a value of $9.94 billion, is the smallest among 16 major economies in Asia, data compiled by Bloomberg show.

“There may be some volatility in sentiment over any election result, but strong earnings will help the market catch up on lost momentum,” said Bimanee Meepagala, who helps manage the equivalent of about $250 million at NDB in Colombo. “Political stability should prevail whoever wins. The biggest overhang was the war and that has been taken away.”

Voters in Sri Lanka, located off the southern tip of India, are choosing between President Mahinda Rajapaksa and former army chief Sarath Fonseka, who quit in November. Rajapaksa, 64, called the poll two years early to capitalize on last May’s defeat of Tamil Tiger rebels who had fought for a homeland in the north and east of the country.

The economy may grow 7 percent in 2010, the fastest pace in four years, spurred by corporate investment and the building of new roads, ports and power plants, Central Bank of Sri Lanka Governor Nivard Cabraal said Jan. 4.

Low Interest Rates

Earnings may increase about 30 percent in the year ending December 2010 with tourism, banks, diversified groups and construction-related companies leading gains in Sri Lankan equities, Meepagala said.

Banks will benefit as interest rates at five-year lows spur demand for credit, while hotel shares may climb as companies build resorts, she said. Cabraal has kept interest rates unchanged for two straight months. December’s inflation rate of 4.8 percent was less than half that in January 2009.

Mark Mobius, who oversees $34 billion of developing-nation assets at Templeton Asset Management Ltd., said on Jan. 7 the country’s stocks have “gone up a little bit too high and we would like to see a correction from where we are now.”

The benchmark index has risen 4.8 percent this year, pushing up the price-earnings ratio to 30.4 times reported earnings, compared with 7.61 times at the same time last year. according to data compiled by Bloomberg.

Policy Environment

The index may decline 10 percent from current levels in the first quarter on concern over how the election winner will steer the post-war economic recovery, said S. Jeyavarman, who manages the equivalent of $35 million as chief executive officer of National Asset Management Ltd. in Colombo.

“The market will move more cautiously this year as investors watch the policy environment,” Jeyavarman said in an interview. “The pace of development will depend on how the economy is run.”

Rajapaksa has vowed to spend $4 billion, or almost 10 percent of Sri Lanka’s gross domestic product, building roads, railways and power plants in the north. His government has called on western nations to help it rebuild after the war and stop raising issues of human rights abuses and the speed of settling civilians held in transit camps.


Fonseka, 59, the candidate for the main opposition parties Janatha Vimukthi Peramuna, or the People’s Liberation Front, and the United National Party, has pledged to eradicate corruption, keep a check on government spending and cut corporate and personal taxes.

“Foreign investors don’t really care who wins,” said Roman Scott, the chairman of Singapore-based Calamander Group Ptd., which last year set up the first private equity fund focused on Sri Lanka. “What they crave is stability above all, followed by the implementation of sound economic policies and proper investment.”

source - www.businessweek.com

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