Abeysuriya said it was imperative to et Sri Lanka into the MSCI Emerging Market Index, which could be a major catalyst in attracting foreign investors to its capital market.
“This can be achieved by listing two large profitable state institutions and establishing a public float of over 20%. $ 9.5 trillion in assets is estimated to be benchmarked to MSCI indexes. When Sri Lanka is in the index, MSCI Emerging Market Index tracker funds will be required to invest in Sri Lanka as they need to replicate the index,” he asserted.
The MSCI Emerging Market Index captures large and mid-cap representation across 23 Emerging Market countries with 836 constituents. The index covers roughly 85% of the free float adjusted market capitalisation in the country.
Speaking at a forum organised by the Ceylon Chamber of Commerce entitled ‘Stock Market: Regulatory Framework and Investment Challenges’, Abeysuriya emphasised the need for a paradigm shift in the way Sri Lanka’s investment advisors treated their clients, in order to restore investor confidence and attract more long-term savers to the capital market.
He said while better regulation and enforcement of regulation was required, there was empirical evidence that robust governance required a focus on an “ethical culture” within financial institutions such as stock brokerages and asset management firms.
“To restore trust, we need a shift towards greater integrity and accountability. We need a stronger and systematic ethical dimension. Getting back on the right path requires education and leadership that is sustained over many years. Most importantly, it requires investors and financial leaders taking values as seriously as valuation and culture as seriously as capital,” he added.
Clarifying his point further, he stated: “Even Pope Francis has recently said it is important that ethics once again play its due part in the world of finance and that markets serve the interests of people and the common good of humanity.”
When investors do not trust the capital market they are unlikely to save and invest for their future and achieve their long-term financial goals, he explained.
For Sri Lanka to transform its capital market into one which produces wealth-creating opportunities, he suggested that it need to get some vital components right.
“If investment advice is accurate, reliable, transparent and received by everyone at the same time, then it is less likely that decisions will be made on emotion and a herd instinct. All stakeholders need to instil public trust in the market, market intermediaries that serve the best interest of clients and robust regulatory standards that protect investors and advocate fair play,” he added. In that context he pointed out that market liquidity had a very strong relationship with stock market growth. The price discovery mechanism would work more efficiently and market manipulations could be prevented if the liquidity of the shares traded was increased. But it was imperative for investors to be financially literate and more prudent, he said.
Abeysuriya suggested that the Securities and Exchange Commission of Sri Lanka (SEC) establish a facility to verify the integrity of RIAs and market intermediaries. A facility where an investor could simply type in their current or prospective broker’s name to see employment history, certifications and licenses as well as regulatory actions, violations or complaints an investor might want to know about.
He said the CFA Institute with its Future of Finance campaign is getting the message out to unite investment professionals in a commitment to place investor interests above all others. This initiative aims to create awareness about the CFA Institute’s ‘Code of Ethics and Standards of Professional Conduct’, ‘Asset Manager Code’ and ‘Integrity List – 50 Ways to Restore Trust in the Investment Industry’ and encourage the global investment community to endorse and share the Statement of Investor Rights, which is a list of 10 rights that any investor anywhere in the world should expect from financial service providers.
Abeysuriya said his favourite seven from the 50 ways to restore trust were to highlight unethical behaviour, advocate stronger regulations that protect investors, never overlook unethical behaviour, bring to justice those who take part in irresponsible and illegal activities, help clients focus on risk as much as they do on performance, strive for a conflict-free business model and act with integrity 24/7 – not just in the office.
Courtesy: Daily Financial Times 12 May 215