Business Times

CB forex relaxation hailed by stock market

By Duruthu Edirimuni Chandrasekera

The Central Bank’s (CB) move to allow Sri Lankans to open and maintain accounts with banks abroad and invest in equity or short term debt instruments in overseas companies was hailed by the stockbrokering community at large.

“Relaxing antiquated exchange controls was a welcome move by the Central Bank. In fact it should have been done decades ago. We shall never develop into an international financial centre while there are 'Capital Account' controls. No one will bring investment money to Sri Lanka if they are not allowed to take it back freely, as and when they want, to where they brought it from,” Sarath Rajapakse Director / Capital Trust Securities (Pvt) Ltd told the Business Times.

He noted that it is well known that a large number of locals possess substantial 'assets' abroad. “These assets earn just marginal income in those countries. If there is no restriction on 'repatriation' of capital and profits, such people will readily invest in their country of origin where substantial gains can be realized,” he added.

He said that though the current capital account relaxation falls short of 'full convertibility' and total removal of outdated 'exchange control regulations' it is nevertheless a move in the right direction and will definitely have a huge positive effect on the local financial markets including of course the local bourse.
“The unprecedented market rally witnessed last Tuesday and Wednesday bear evidence to this fact.”
Arjuna Dassanayake, Vice President Acuity, noted that relaxing exchange controls has a balancing effect now as there are more opportunities for inflows than out flows as the confidence levels are much higher that it was an year ago.

He also noted that it is an opportunity for all market related activity to increase including local firms tying up with foreign companies to maximize business opportunities and a better scope for investors.
He also said that the local corporate debentures will be very attractive especially on companies with good ratings and huge growth potential for example the top apparel, such as for firms like MAS, Brandix and Hirdamani’s who have made an impact in the world market place.

However another analyst noted that the prospect of Sri Lankans investing in overseas stock markets would mean the demand for equities in Sri Lankan companies would decrease and hence it could significantly impact the stock market.

“The prevailing stock market performance and the future potential attached to investing in the CSE would not attract local investors to invest in foreign markets. On the contrary, the possibility of investment in foreign stock markets by local investing firms would give them the exposure to exploit positive market conditions in foreign countries which would in turn positively affect the local companies share prices,” he said.

He noted that allowing foreigners to invest in Rupee denominated debentures of local companies will see the increased demand for debentures with funds available for expansion in local companies increasing and hence improving the scope of development for the companies.

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