Invest In Sri Lanka

Update : 8/13/2011

Since Writing this post, Sri lankan stock market gained 2500 points.
All share price index was at 4200 level when this was written back in May 1, 2010. Your capital would have appreciated by 160% at the time of this update.

A small island with a land mass of 65610 Sq.KM and a population of 20 Million, Sri Lanka lies off the southern coast of India. For many, Sri Lanka was known for its high quality ceylon tea until a few decades ago. In the past two and a half decades, Sri Lanka has been picked up by the global media mostly in relation to the civil war which hampered the country, or the 2004 tsunami that ravaged South and Southeast Asia.

30 years of war did not allow the country to reach it’s potential development. The destruction to the infrastructure prior to the 2002 ceasefire is estimated to be approximately $2.1 billion, nearly 13.5 percent of the 1998 GDP.

High expenditure on defense, loss of life and damage to property, underutilized factors of production, Inability to exploit tourism potential resulted a low and volatile economic growth throughout the civil war era.

The dark days for Sri Lanka is over now.The war finally came to an end on that historical day May 17, 2009. The country did not have to wait years to witness a peace dividend. A $2.6 billion IMF loan approved in July 2009 which boosted country’s developing activities. Sri Lanka is seeing major improvements in Economic indicators after the end of war as the uncertainties and risks of the war diminishes.

Falling inflation rates has driven the risk free rate down resulting the real returns to go up.

World’s 2nd Best Stock Exchange

With favorable macro economic conditions, Sri Lanka’s only stock exchange, “The Colombo Stock Exchange” became Asia’s best performing bourse and the world’s second best after Russia for the year ended Dec 31 2009.

Colombo stock exchange is one of the most modern exchanges in South Asia, providing a fully automated trading platform. The bourse consists of 236 companies with a combined market capitalization of $12 billion.

All share price index growth

The All Share Price Index measures the movement of share prices of all listed companies in Sri Lanka. It is based on market capitalization. Weighting of shares is conducted in proportion to the issued ordinary capital of the listed companies, valued at current market price.

As you can see, Sri Lankan stock market always performed well during a peaceful environment. Even before ending the war completely, during the cease fire agreement the market witnessed a significant growth.

In simple terms, If you have invested $10,000 at the beginning of last year (2009), your investment would worth $25,080 now.

* The calculation is based on all share price index growth and I hope the readers are aware of how indexes are used to measure market rates of return.

Industry experts believe the growth to be much higher under prevailing favorable macro-economical conditions coupled with stable political environment.

Milanka price index growth

The Milanka price index comprises of 25 companies and they are selected by considering their performances over the past four quarters. The Colombo stock exchange now reviews & revises the companies to be included in the MPI on a biannual basis.

MPI also behaves identical to ASI when macro-economic and political factors change. It also saw a significant growth during the cease fire period and reaching new grounds in these post war Era.

If you have invested $10,000 in a portfolio consisting of Milanka companies at the beginning of last year (2009), your investment would worth $27,351 now.

Individual company performances

Sri Lankan mass predicted and felt that the war is near it’s ending when they got ready for the new year 2009. Local and foreign investors started collecting shares knowing that good times are ahead. Their predictions were right. Financial analysts picked solid companies from sectors which has the potential to gain from peace dividend quicker than other companies and gave Short and Mid term buy signals.

Let’s see how few of them performed in the market.

All my individual company selections were based on my stock broker’s research recommendations. They gave positive buy signals to many companies which did extremely well and following companies were among those they recommended.

Diversified sector
To represent diversified sector, I took John Keels holding PLC which accounts for 9% of total market capitalization. Their business activities includes Tea Exports,Insurance,Pest Control,Industrial & Agro Holding Company Chemicals,Treatment of Timber,Management of Plantations,Travel & Tourism,Hotel operations.

In simple terms, if you have invested $10,000 on John Keels Holdings at the beginning of last year it would worth $37,800 now. I have not accounted for exchange rate fluctuations during the time period.

Today one dollar equals Rs 114. For up to-date exchange rates please refer http://www.cbsl.gov.lk/

Hotels Sector

To represent Hotels and Travels sector I selected Aitken Spence Hotels which was one of the analyst’s favourite picks during the considered time period.

In simple terms,

Banking And Finance Sector
I selected Commercial bank of Sri Lanka to represent banking & Finance sector as I believe they are the best banking Institution in Sri Lanka.

Which means, if you have invested $10,000 on Commercial Bank PLC at the beginning of last year it would worth $33,900 now.

Are you too late?

True enough that most stock prices have sky rocketed when comparing with last year prices. As a result, the overall market price earning ratio is approximately 20 indicating that most shares are over rated at the moment. But it also shows that current investor sentiment is that the stocks are worth more,their future prospects are bright, and sellers are only giving up their stock at higher prices.

We should also not forget the fact that last quarter data of 2009/2010 financial year is not yet released to the market. Most companies have performed exceptionally well in the last quarter and once that financial data is released the P/E ratio will come down to fair levels.

Equity analysts forecasts company profits will rise by a mean of 60 percent this year. The consumption levels are increasing and earnings will keep growing in the next two to three years as a result of it. There has been no better timer to invest in Sri Lanka.

Start Investing

Foreign ownership of up to 100% is allowed in most of the listed 236 companies. Individuals, Regional Funds, as well as Companies incorporated outside Sri Lanka are permitted to invest in sri Lankan stock market.

Investment in shares in Sri Lanka and withdrwals of proceeds should take place through Share Investment External Rupee Accounts (SIERA) opened with commercial banks. The repatriation of proceeds arising out of investment made after 5th June 1990 are not subject to Exchange Control regulations.

Choose your Stock Broker

There are 15 licensed full service broker firms in Sri Lanka and all of them are maintaining the same brokerage. It is a must for you to select a broker firm with a qualified and experiences research team as your investment decisions will be based on their research reports. Select a broker firm which is capable of providing unique investment insights through extensive deep dive researches.

Following is the list of equity brokers in Sri Lanka and their locations.

1. J B Securities (Pvt) Ltd.
150, St. Joseph Street, Colombo 14.

2. Bartleet Mallory Stockbrokers (Pvt) Ltd
Level “G “, “Bartleet House”, 65, Braybrooke Place, Colombo 2.

3. Acuity Stockbrokers (Pvt) Ltd.
Level 6, Acuity House, No. 53, Dharmapala Mawatha, Colombo 3.

4. John Keells Stockbrokers (Pvt) Ltd.
130, Glennie Street, Colombo 2.

5. Asha Phillip Securities Ltd.
Level 4, “Millennium House”, 46/58, Navam Mawatha, Colombo 2.

6. Assetline Securities (Pvt) Ltd.
3rd Floor, “Forbes & Walker Building”, 46/38, Navam Mawatha, Colombo 2.

7. Somerville Stockbrokers (Pvt) Ltd.
137, Vauxhall Street, Colombo 2.

8. Lanka Securities (Pvt) Ltd.
228/2, Galle Road, Colombo 04.

9. Asia Securities (Pvt) Ltd.
Level 21, West Tower, World Trade Centre, Echelon Square, Colombo 1.

10. Ceylinco Stockbrokers (Pvt) Ltd.
Ceylinco House, Level 9, 69, Janadhipathi Mawatha, Colombo 1.

11. Capital Trust Securities (Pvt) Ltd.
42, Mohamed Macan Markar Mawatha, Colombo 3.

12. S C Securities (Pvt) Ltd.
2nd Floor, 55 D.R. Wijewardena Mawatha, Colombo 10.

13. CT Smith Stockbrokers (Pvt) Ltd.
4-14, Majestic City, 10, Station Road, Colombo 4.

14. DNH Financial (Pvt.) Limited.
Level 16, West Tower, World Trade Center, Colombo 01.

15. NDB Stockbrokers (Pvt) Ltd.
5th Floor, NDB Building, 40, Navam Mawatha, Colombo 2.

I have been trading in the Sri Lankan stock market since 2004 and have associated with many brokering companies and investment advisors. Feel free to contact me if you need any background information on your selected broker company.

You can also contact me if you need any further information or if you have further questions regarding this article. I will try my best to send you a feedback in a timely manner. ( Within 36 hours depending on the question).

Happy Trading !!!

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