Thursday, October 28, 2010

Investors eye frontier markets

Charumini DE SILVA

The frontier markets such as Sri Lanka will be the current and future growth engines of the global economy Logan Rockefeller Global Principal Don LaGuardia said.

Speaking at the CEO forum organized by the Institute of Chartered Accountants of Sri Lanka (ICASL) he said the accelerated rate change combines with the de-risking that will occur in frontier markets.

This asset class is positioned to offer potentials of the highest returns.

“Sri Lanka’s economy is one of the best economies in the South Asian region. The US is now looking at frontier markets for their valuation and diversifications.

The benefits of foreign investors coming into the market are that it lowers the cost of funding, mobilize domestic savings and allocates capital funding, facilitates exchange of goods and services, greater liquidity for market participants and improved corporate governance and transparency,” he said.

“With in one and half years time of restoring peace Sri Lanka has shown tremendous progress and it is unparallel. The country has now being mapped as a frontier market with dawn of peace. It is time for Sri Lanka to seize the moment and will last for a long time,” LaGuardia said.

The Colombo Stock Exchange’s (CSE) market capitalization appreciated by 125 percent in 2009 becoming the second best performing capital market in the world.

There has been an increase in volumes from UD$ five million to US$ 20 million per day. The Initial Public Offering’s (IPO) on average was 10 percent over subscribed with a first day performance of over 65 percent.

The key drivers of the Sri Lanka’s future economy growths are the construction boom, increased tourist arrivals, increased economic activity due to expectation of ports and increase in Foreign Direct Investment (FDI) due to economic stability.

He said the public and private participation during the post war scenario was remarkable and expects that it would continue further in the coming years.

However, we cannot expect this fine environment would last long because I believe in reality and being cautious will help to remain sustainable,” he said.

The market is driven on the base of supply and demand and it all depends on these two key elements. As the market grows and demand increases there is an essential need to increase the supply of the market.

We hope that in the years to come more companies will be in the market to cater to the increasing demand from both foreign and local investors with a better choice of stocks,” he said.

The CSE has been much vibrant and if the supply could be enhanced it would greatly help to improve the economy.

Sri Lanka should look at expanding the market capitalization and its contribution towards the Gross Domestic Production (GDP).

The country’s capital market has not leveraged and there are less margin lendings, which a good indication of that there is much less probability of market over hit. “We are mainly looking at pre-IPO opportunities that are keen on entering the market and also the private equity market which has many opportunities,” LaGuardia said.

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