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Saturday May 04, 2024
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From left: SEC Chairman Viraj Dayaratne, Sri Lanka’s High Commissioner to the UAE Malraj De Silva, Central Bank Governor Ajith Nivard Cabraal and CSE Chairman Dumith Fernando
The first-ever post-pandemic Sri Lanka Investor Forum to woo foreign funds to the capital market concluded successfully on Friday with a strong turnout of top Dubai-based Sri Lankans across multiple industries.
The multi-stakeholder initiative was championed by the Colombo Stock Exchange (CSE) and the Securities and Exchange Commission (SEC) in association with the Embassy of Sri Lanka in UAE and the Consulate General of Sri Lanka to Dubai and the Northern Emirates.
It also marked the resumption of overseas roadshows successfully carried out prior to the onset of the COVID-19 pandemic, attracting global portfolio investors to Sri Lankan listed equities and debt.
Central Bank Governor Ajith Nivard Cabraal was the keynote speaker at the first-ever post-pandemic Sri Lanka Investor Forum held at the Sheraton Grand Hotel Dubai. It drew over 180 participants.
“The time is now for you to take up positions; we still have a lot of potential for the Stock Exchange to grow. We have an extraordinary growth story to tell for the future and that growth story will come from you, from the investors, from the companies which are being listed, from the companies that are in operation in Sri Lanka,” Cabraal said, delivering the keynote address.
He said the capital market had latent potential and strength within Sri Lankan equities that were yet to be realised.
The Governor also emphasised the commitments by the Government in terms of policy direction.
He said since 2015 Sri Lanka had sluggish growth, so much so that by 2019 growth had come down in the country to around 2.3%. “The Government had to give a stimulus and whatever anyone may say, it worked. That timely decision safeguarded the economy,” he said.
Cabraal called on the Sri Lankan diaspora to be a part of the growth story of Sri Lanka.
“The first step I took after assuming duties and as the Central Bank team was to ensure that we give clarity and it was set out in our six-month roadmap. So the investors would know where the economy was directed — what the rupee would do, where the interest rates would be, what the situation would be with regard to the debt repayments, which way the country would handle its balance of payments. Unless those tough questions are answered, the rest of the questions would be irrelevant. That is why we have taken the painstaking steps to individually answer those questions and give them confidence,” he explained.
Now that the overall stability of the economy would be maintained, he said the need was to ensure stability within the community.
“Even during COVID, if we had another additional 20-30% more to be paid as taxes, many of these companies would have been struggling. If there were higher interest rates to be paid, many of these companies would have been struggling; you wouldn’t have had that same momentum. And if that momentum was not there, that wouldn’t have got translated into a good feeling. And if you don’t have a good feeling, you won’t have people coming in investing.”
SEC Chairman Viraj Dayaratne PC explained how it was customary for the Colombo Stock Exchange and the regulator, the Securities and Exchange Commission, to have events of this nature to invite investors to Sri Lanka’s stock market from different parts of the world. But due to the pandemic, this exercise was prevented for over two years.
“As the regulator of the stock market, the Securities and Exchange Commission has a dual role to play; we have to regulate the market and at the same time, ensure that we take steps to develop it. So, in managing these two, these twin interests or duties, if I may call it, we have to strike a balance because whilst regulation is important to ensure the protection of investors and the integrity of the market, it is also necessary to ensure that we do not overregulate so that all market participants have the freedom and the space to engage in their activities,” he said, explaining the role of the SEC.
Dayaratne said the number of trades that take place had increased tremendously and as a result, it was necessary to ensure the integrity of the market. “We have enhanced our surveillance functions and the supervisory function. We have real-time surveillance on a daily basis with regard to the trades that are taking place. Our Corporate Affairs Division supervises and looks into the affairs of listed companies, then market intermediaries are supervised by our Supervision Division. This ensures that market integrity is maintained at all times and that all investors’ interests will be looked after.”
He added: “One other significant achievement was the enactment of the new Securities and Exchange Commission Act that was on the cards for several years. The new law was brought in and I must tell you that it not only helps better regulation but also provides a lot of opportunities for the development of the market; it will be possible for us to introduce new products and facilitate the setting up of new funds. That means creating more opportunities for you all to invest.”
Dayaratne also spoke on the digitalisation drive of the Stock Exchange: “Digitalisation resulted in a large number of new accounts being open and a large number of investors have come into the market. That is an achievement and digitalisation brought about that change. It is very easy now for anybody living anywhere in the world to open a CDS account and start trading.”
SEC Director-General Chinthaka Mendis said the market was performing exceptionally well and the SEC had implemented multiple development and regulatory measures to instil confidence in the market.
“The enactment of the new SEC Act has created a robust regulatory framework which is a futuristic one and it will pave the way for the market to grow further. We have revamped the initial listing framework so that the companies will be able to raise much-needed capital in an efficient manner,” he stressed.
CSE Chairman Dumith Fernando outlined stock market returns and why CSE thinks they will be sustained, along with the relevance and investor choices that the audience will have over the next couple of years at the CSE.
On the returns front, he said: “The All Share Price Index is up 58%. Year-to-date, the more liquid S&P 20 index is up 38%. It is a time when all the stars are still very much aligned for continued performance in the stock market in Colombo. First, like most markets around the world, we were in a low-interest rate regime. This has created very low real interest rates, which has made alternative investments a lot less attractive than the equity markets to many investors. So a significant number of investors have joined the stock market in the last year. Secondly, the fundamentals are very strong. Corporate earnings are at record levels. In the second quarter of the calendar quarter of this year, listed companies recorded revenues of Rs. 940 billion and profits after tax of Rs. 78 billion, which is an all-time high. From what we have seen with some of the companies that have reported results this quarter, it’s even better. So this is not a market that is being driven by just investor interest.”
He also said a record number of investors were now participating in the market. “Two years ago, we had about 12,000 investors in the stock market from Sri Lanka. This year we have 50,000 and we haven’t even completed the year yet. We have had records being set in terms of new issuances. At the moment there is a company that is coming to list and oversubscribed by 11.8 times, and every single IPO this year was oversubscribed on the very first day.”
“Despite the market having risen so much, our valuations are still very low. Actually, it is below average, at least 10-12% below 10-year averages. But more interestingly, it is about 30% lower than previous years in terms of low interest rates. So I’m looking at the price to earnings and price to book value ratios. I know many of you have other options to invest in, but if you look at emerging markets, or frontier markets, the Sri Lankan stock market is undervalued in relative terms by 20-25%, so we do believe that there is still reasonable upside for anyone who wants to participate,” he added.
Speaking of the relevance of the stock exchange, Fernando stated that it had become a real marketplace with real activity and real supply in terms of new companies listing and people trying to raise capital and new demand in terms of very large numbers of new investors participating.
He established why one should dip toes into the CSE: “For a long time we have been a place where shares and debentures have traded. But 18 months ago, we put a strategic plan in place where we wanted to increase the number of options available to investors, so that you can invest across asset classes. You will also have the option of betting not only on bull markets, but bear markets as well. So our product roadmap. This year we are hoping to introduce a new form of listing – dollar listings or multi-currency listings. For local companies, particularly for exporters who need overseas currency capital, we are looking at introducing a gold-based product. We have also introduced repo trading on debt securities, which has already started. One of the major infrastructure changes this year was the introduction of delivery vs. payment. Next year we will be able to introduce some very exciting new products including primarily stock borrowed lending and short selling.”
Fernando pointed out that the CSE was not taking just another step, but a quantum leap in terms of what it was going to be for Sri Lanka.
The forum also featured a prominent line-up of other speakers including the Sri Lanka’s High Commissioner to the UAE Malraj De Silva, Sri Lankan High Commission Dubai Consul General Nalinda Wijerathna and SEC Director-General Chinthaka Mendis.
CT CLSA Executive Director Research and Strategy Sanjeewa Fernando, CAL Chief Strategist Udeeshan Jonas and SC Securities Head of Research Charitha Gunasekera were featured in a technical session that covered market outlook and sectoral presentations.
CSE CEO Rajeeva Bandaranaike joined the stockbroker representatives for an engaging panel discussion, which was well received by the participants.
The ‘Invest Sri Lanka’ initiative in Dubai was supported by SC Securities Ltd. as the Platinum Partner and Ba’rtleet Religare Securities Ltd. and Sampath Bank PLC as Gold Partners.
The initiative generated keen interest among Sri Lankans living in the UAE, where senior representatives from the SEC and CSE strengthened Sri Lanka’s investment case through a number of interviews during the period.
