Tundra Fund sees great upside for Sri Lankan stocks following presidential election

Foreign investors appear to have found the next big thing to upend the direction of the sluggish Sri Lankan stock market, as they pin hopes on the upcoming presidential election to change fortunes of those who have lost wealth and await until they could cash in from the opportunity. 

According to Tundra Sustainable Frontier Fund, an open ended equity mutual fund investing in emerging market equities stated that the forthcoming presidential election is a significant pivot to, “ a more transparent political situation thereafter”, and “ therefore has the greatest potential to generate excess returns over the next couple of years”. Tundra has investments in multiple stocks in Sri Lanka, but in recent times such investments have given them underwhelming returns due to the lacklustre performance of the Colombo Stock Exchange due to a combination of bad policies and bad politics, and therefore has been searching for a significant event to change its course since 2015.

During the week ended April 5, foreigners bought a net Rs.316 million worth of stocks but they have been net sellers of stocks worth Rs.  5.75 billion, the data analysed by statistical consultant Sanjeewa Dayarathne showed. 

Tundra has positions in several stocks, and in March it stated that it lost a 20 percent stake in Sampath Bank,  post the announcement of the rights issue.
Tundra has an 8 percent portfolio weight in to Sri Lanka. 

The Swedish-based fund offers a broad based view of foreign investors who have positions in Sri Lankan stocks but have lost value in 
recent years. 

Therefore, the fund’s expectation may be coming as music to the ears of the battered investors - both local and foreign - who have also been looking for a silver lining through the 
dark clouds. 

Both mom-and-pop investors and institutional and high net worth investors lost million or sometime billions of values in their equity portfolios after the 2015 change of regimes, as many policy errors damaged the perception about the CSE. 
“ …..we currently see Sri Lanka and Pakistan as the two markets where the perception of the market is perhaps closest to the bottom levels and therefore has the greatest potential to generate excess returns over the next couple of years’, Tundra added in their March update. 

Tundra’s analysis of the Sri Lankan equities market points to politics as a key cause to much of the ailments, and therefore indicates solutions too lie within politics. 

The battleground for Sri Lanka’s contentious presidential race has heightened in recent weeks after former Defence Secretary, Gotabaya Rajapaksa’s name began to float. 
Overall in March Tundra Fund fell 1.6 percent mainly from the negative contributions from Pakistan, Bangladesh and Turkey, while Argentina and Vietnam added positive contributions.