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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Sri Lanka's Serendib Stockbrokers in fundamental research push

Sri Lanka's Serendib Stockbrokers in fundamental research push

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CSE.SAS

CSE.SAS
Global Moderator
Mar 27, 2013 (LBO) - Sri Lanka's Serendib Stockbrokers, a unit of Pakistan's Arif Habib Corporation says it is engaging in research supported aimed at its international customers and domestic clients after being re-branded and recapitalized.

"When a client is investing in the stock market it is the business risk he is taking, it is not the price risk," says Naushervan Beg, who is chief executive officer of the newly rebranded Serending Stockbrokers, which was earlier known as SKM Lanka Holdings.

"Unfortunately what we witnessed here in the past was everyone started taking on a price risk.

"As an investor you can't do better in a company than its management. The whole potential lies in what the business is, what business model is and the skills of the management running that company."

Bubble Mania

Sri Lanka witnessed a massive stock market bubble, fueled by low interest rates and excess liquidity which made investors think that prices will continue to go up.

Many retailers were taught to disregard fundamental analysis and stock trading with margin credit based on technical analysis, which tracks price trends and crowd behavior became popular.

Such crowd behavior and asset price bubbles are normal when interest rates are low and become corrected when excessive credit starts to hit the balance of payments (in a pegged exchange rate country) or inflation rises (in a floating rate country), requiring higher interest rates.

There have been similar documented bubbles starting from the Tulipmania in Holland (one of the places where modern banking originated and worsened by new world gold discoveries and free coinage which bloated money supply free coinage to the dot com bubble.

People who do trade on prices and credit however should be prepared to cut loss immediately as price fall instead of holding on like fundamental investors do, after buying on price trend psychology.

Serendib Stockbrokers itself had to provision off margin loans. Beg says the firm is also getting on-going support from the parent to strengthen its business, including with building a research team.

Beg is the son of a senior Arif Habib group director, who has worked in brokering both in Pakistan and Canada's. He says sending a company official to take-over management in Sri Lanka showed that the group is committed to the country.

Arif Habib Corporation started in 1984 as a brokerage house, got listed in Pakistan in 2001, and is now a diversified group with interests in brokering, mutual funds, corporate finance and its related companies are in cement, dairy, fertilizer, and wind power.

It is also in property and real estate, real estate investment trusts (REITS).

Beg says the group managed about 90 percent of the initial offers in Pakistan last year and manages the equivalent of 50 billion Sri Lankan rupees as mutual funds.

The name Serendib was chosen as part of a strategy to market Sri Lankan stocks through its group business.

"The name Serendib can be used to put under the larger flagship banner of the Arif Habib group and can be marketed towards an international client base," Beg said.

Knowledge Game

Serendib is developing a research team supported by the group through teleconferences and planned visits by Pakistani equity researchers.

"It is a game of knowledge and if you understand that game of knowledge then success is guaranteed," Beg says.

"If you can impart that knowledge to your client and bring value, there is no stopping you.

"If we can do so well in Pakistan when the literacy rate is low in Sri Lanka the literacy rate is higher so that mechanism of bringing value to the general public is quite easily doable.

"We are building our research capability. We are hiring new people, who in turn are getting trained by our research team out of Pakistan.

Beg, who has worked in Canada says selling to foreign investors requires intensive research.

Beg says in his experience to sell to an international investor, the broker must be able to develop and form a five year view of the company.

"If you want to deal with international clients the only way we have served our international clients out of Pakistan - which are some of pension funds for example - is by giving them proper fundamental research.

"They'll ask you drill down questions. If you understand the business model of the company and you can answer the questions it is good. If you don't understand it and can't answer it then those foreigners will walk out.

A Sri Lankan line will be added to the Arif Habib's international sales desk.

"Sri Lanka will be another flavour that they will offer."

Unlike foreign brokerages that came at the height of the bubble, Sri Lankan stocks are better valued now.
http://lbo.lk/news/Sri_Lankas_Serendib_Stockbrokers_in_fundamental_research_push/431240101

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