Slew of funds attracting strong firms in CSE
A slew of new foreign funds have come into the Colombo stock market securing small stakes in listed firms this year.
The Securities and Exchange Commission (SEC) has approved some 83 funds since the beginning of this year, SEC sources said.
Amongst them, William Blair Emerging Markets Small Cap Growth Fund, has as at March invested 0.68 per cent of its portfolio weight (percentage composition of a particular holding in a portfolio) in John Keells Holdings and 0.44 per cent in Commercial Bank.
As at 31st March this year, Odel PLC has seen HNC Opportunities Master Fund taking a 1.69 per cent stake and Chambers Street Global Fund 0.54 per cent.
In Lion Brewery’s top 20 shareholders, One Offshore Master Fund LP, Barca Global Master Fund, Wasatch Emerging Small Countries Fund and Chambers Street Global Fund are prominent. GF Capital Global Ltd, Barca Global Master Fund, Chambers Street Global Fund are among Ceylon Beverage Holdings’ top 20 shareholders.
According to the SEC website, 124 new funds were approved last year. Amongst them are Marlborough Tiger Fund Ltd, Pioneer Multi-asset Income Fund, Origin Funds Public Ltd Co, Wasatch Frontier Emerging Small Countries Fund, Marathon New Global Fund Public Ltd Co, and Universal-Investment-Gesellschaft Mbh For Apt-Universal-Fonds.
Morgan Stanley Capital International (MSCI) indices, a benchmark used by global fund managers, in its MSCI Frontier Markets Index has included Sri Lanka in its list of country investments.
Analysts say that listed firms with strong valuations are attracting new funds owing to the extensive promotions by stockbrokers as well as the stock exchange and SEC since early this year. “Some are buying small stakes but the fact is they are purchasing,” an analyst said.
New funds have also invested in those with foreign affiliations such as Nestlé’s, CTC and Caltex, he added.
Many agree that the lack of liquidity in Colombo’s stock market is a serious issue and if this is addressed, foreign funds’ entry will be more regular.
Writes Nicholas Pardini, Managing Partner at Nomadic Capital Partners in the ‘Emerging Market Insider’ newsletter; “The downside for investing in Sri Lanka is the lack of liquid investment options. Colombo’s stock exchange is highly illiquid and charges rich commissions. Among the stocks listed in Sri Lanka, none has the transparency or size needed to draw foreign investments.
As a result, real estate and private equity are the best ways to capture Sri Lanka’s growth.”
He also says that since Sri Lanka’s main driver for growth is tourism, projects in that sector should outperform. “Although private equity firms have made large investments, there is room for more entrants in the market.
An example of this is the supply and demand of hotels. Even though Sri Lanka has one of the world’s lowest cost of living, hotels in Colombo still average US$200 per night. The reason for this is a massive shortage of hotels on the island. Lacking world-class restaurants, and resort amenities also provides other high return outlets.”
He adds that overall, Sri Lanka’s emergence provides one of the best investment opportunities in South Asia with the highest rewards found in the country’s nascent tourism business.
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