Bentota Sri Lanka by kunOme
Moshe, a reader from Israel wrote to me some time ago, pointing me towards Sri Lanka, and the equity markets there. His email fascinated me because I donâ€™t know of many people who are curious about markets beyond their own country, or what is commonly discussed in the media.
Iâ€™ve been trying to dig up some information about Sri Lanka since then, and finally came up with this post, when I watched Mr. Nivard Cabraal, the central bank governor of Sri Lanka on Bloomberg last night.
The interview was taken after the central bank chose to keep its reverse repo and repo rate unchanged at 11% and 8.5%. The central bank has been lowering rates steadily pretty much like the rest of the world, so a change was expected this time also. The governor said that the commercial banks have a lot more scope to lower interest rates, and that the adjustments made by the commercial banks still do not fully reflect the lowering of rates by the central bank. So, the central bank needs to see more done by the commercial banks before it cuts down rates any further.
Rates are being eased to spur demand and boost growth of course, and this year has been good for Sri Lanka, as the central bank raised its GDP growth target for 2009 from 2.5% to 4.5%.
The positive GDP estimate reflects in the stock market as well, which has grown by more than 60% this year, and is the second best performer in Asia (after Indonesia). To keep things in perspective, Sri Lankan markets suffered tremendously in the past few years due to the war, and so the 60% growth is from a much lower base.
The stock market is not the only place where you can witness the turn in sentiment, the hotel industry is also witnessing a boom with all hotels booked completely from December to April, due to a rise in tourism.
Not all is hunky dory though; the country is facing a fiscal problem, and was able to avert a crisis only because of the timely rescue by the IMF, which approved a 2.4 billion dollar loan to strengthen its forex reserves.
The international media has also raised several question marks on human rights issues in the country. Winning the war is great in terms of peace, but a lot more needs to be done in terms of infrastructure development, and getting foreign capital to rebuild the country.
The stock exchange is the smallest in Asia, and I couldnâ€™t find any direct way of investing in Sri Lanka, even if you were convinced that it is a good bet. It seems to me that the market is still too small to attract mutual funds or ETFs to launch a fund which targets Sri Lanka, like the India ETFs.
The closest I could get to finding information on investing in Sri Lanka was this link on CSEâ€™s website. If you go to this page, and give in your contact details, they will send a booklet with details on how to invest in Sri Lanka. I donâ€™t know whether this is valid for international investors, but if you are interested enough, it is worth a try.
So, there you go: a brief primer on Sri Lankaâ€™s latest economic situation based on recent articles in the media. Nothing more than that, and certainly not a recommendation to buy or sell Sri Lankan stocks.
Here are some links that talk a bit more about Sri Lanka:
Behind the Rajapaksa brotherâ€™s smiles: Economist
A loan for Sri Lanka: Economist