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Elections
and shareholder value
Our columnist advises investors to wait until a clearer picture
emerges about the outcome of the presidential poll and argues that
lack of economic and social stability will result in fluctuating
company earnings.
As
far as the Sri Lankan political environment is concerned, the forthcoming
presidential elections is one of the most important elections and
I believe that it will affect shareholder value.
Shareholder
value
National level elections can influence the following factors which
will in turn affect shareholder value.
* Business risk
*Macro economic
factor
*Social stability
Business
risk
One of the reasons why the Colombo bourse does not always reflect
its true value is because the market is perceived as high risk.
As a result confidence is low and therefore stocks are at times
valued less than what they should be. A contributor for this phenomenon
is the fact that there is a risk of war in the country. Even though
there is no war at the moment due to the ceasefire agreement which
is in place, the risk of it does tend to continue. A clear form
of minimising the risk would be reviving and strengthening the peace
process and moving towards a sustainable permanent solution.
Stability
There has unfortunately been significant policy shifts among governments
of the past with regard to managing the economy. Sri Lanka has been
experimenting with socialism and open economic policies.
I think it is time that the main political parties reach consensus
on an economic agenda on areas such as privatisation, taxation,
tariffs, inflation management, unemployment management and interest
rates. Lack of stability in the economic front will result in fluctuating
company earnings, preventing them from maximizing shareholder value.
Social
stability
Sri Lanka has been heading towards social instability gradually
over the last two decades due to imbalanced economic development,
deterioration of law and order as well as unresolved ethnic conflict.
It is difficult to achieve consistent and high earning when social
stability is low in a country.
The
elections
The two main candidates vying for presidency have fairly contrasting
views as to how they intend to resolve these issues. I believe what
Sri Lanka needs is a strong leader in character rather than speech
who has a vision for the country, who understands the modern realities
in terms of economic policies as well as social changes and who
will work to take his people towards prosperity.
The
market
The market will tend to be volatile these days and will tend to
fluctuate based on speculation. As the days move closer towards
the elections, clear ideas of a winner may emerge and the market
may reflect values incorporating the likely policies of this candidate.
Message
to the investor
This is an interesting as well as a challenging period. The best
position would be to wait until the dust settles to watch where
the outcome is heading. As far as shareholder value is concerned
it would principally depend on who wins the elections.
(The
writer could be reached at - ravim@icbsgroup.com) |
