Sri Lanka, despite its turbulent political past, presents many attractive opportunities for investors, says Roman Scott, managing director at Calamander Capital, according to a report in CNBC. "This is a bit of a Cinderella story here because of the ethnic war, people didn't realize that structurally Sri Lanka was a very, very good economy," Scott was quoted as saying.
Unlike many Asian nations, the country is not dependent on exports and is largely consumer and services driven, and has outperformed its regional neighbors with an average growth of 6.5% over the last 6 years, Scott said.
"We reckon there's at least another 2 percentage points of GDP that was taken off because of the war, both the physical effects and confidence effects," he added.
Calamander currently has $5 million invested in Sri Lanka, particularly in the consumer, agribusiness and tourism sectors, and the fund hopes to increase the value of the holdings to $30 million by the year-end.
While Scott is bullish on the country's growth prospects, he is not "overly keen" on its equity markets despite the 120.5% return in the benchmark stock index over the last 12 months. "The time to buy was one year after the war," he explained in the CNBC report. "It's a fabulous story, but it's gone too far, too fast." He also notes that the market's trading volumes are low - a result of a lack of "depth and liquidity".
The only stocks worth investing are the country's banks, Scott added, describing them as "big enough and liquid enough." He also recommended John Keells, the largest-listed conglomerate on the Colombo Stock Exchange, which he said represents "a good proxy" for the local market.
In terms of investment risks going forward, Scott said that inflation and subsequent weakening of the Sri Lankan rupee are looming concerns. However, he assured that inflationary pressures are coming under control. The country's consumer price index fell to 5.27% in May from a year earlier, which he deemed as "exceedingly good", considering that food price inflation crossed 40 percent in 2008.