SL among frontier markets offering best value: Citi

Sri Lanka is among the top frontier markets that provide extremely attractive valuations, according to Citi frontier markets strategist Andrew Howell.

“We thought Sri Lanka was cheap, but it turns out it’s really cheap. It’s a market you probably want to look at closely,” Howell was quoted as saying to Wall Street Journal.  

Howell told Wall Street Journal that the increased transparency at frontier markets in terms of published data and in analyst coverage has helped Citi to build a rating model for the leading frontier markets, which gives investors a macro view of prospects for 18 countries. 

The model currently shows Sri Lanka, Romania and Kenya as the most attractive markets based on six key metrics: earnings momentum, price momentum, valuation, macro growth and imbalances and monetary policy.

The net foreign inflow to the Colombo Stock Exchange (CSE) has topped Rs.4 billion year-to-date. 

In 2017, the net foreign inflow stood at Rs.17.7 billion, as opposed to meagre Rs.383.5 million a year ago. The 2017 number would have been even higher if not for the acquisition of Singer Sri Lanka by Hayleys PLC from foreign owners.  

However, despite the bullish foreign interest due to attractive valuations, local investors have kept themselves away from the market for the last couple of years. 
The absence of state-controlled pension funds and other key state institutions in the market due to various external reasons has been identified as the major reason for the lack of local investor interest. 

“The only way to trigger growth at the Colombo Stock Exchange is more state participation by way listing state enterprises and aggressive investments, particularly by pension funds,” a stockbroker told Mirror Business on the grounds of anonymity.

He said a large number of newly created international funds are turning a blind eye towards Sri Lanka as the Colombo Stock Exchange does not offer something attractive in scale that they can come and invest.

“If some good SOEs come to the market, they will definitely look at Sri Lanka,” he said.