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Bullish about a sustainable turnaround
Dilshan Wirasekara
Chairman-Colombo Stock Exchange
“The next five years will be a period of renaissance for the country that we haven’t witnessed since independence”
Q: How important are foreign investments in the context of the Colombo Stock Exchange (CSE)? And likewise, why is the CSE a viable platform to pursue foreign investment inflows, in your assessment?
A: They are critical – not just from a CSE perspective but a country’s perspective as well. As a nation, we have faced concerns as some foreign exchange inflows over the past years have been debt related, and entail an interest cost and repayment. These inflows can be short term – so as soon as macro fundamentals become unstable, they flow out.
In terms of capital flows of foreign investors, they take a long-term view. And they don’t affect debt dynamics – including the debt to GDP ratio or debt servicing obligations. We must convert and move away from debt to non-debt related investments.
The CSE is a good platform to promote listed companies and listed debt. Following continuous outflows for four years since 2017, we recorded a net foreign inflow last year both from a secondary and primary market point of view.
Collectively therefore, we received Rs. 50 billion in net foreign inflows from these markets, which is one of the highest we’ve seen historically. And so far this year, net foreign inflows have been positive at around five to six billion rupees.
Q: How does the CSE encourage foreign investors to participate in the stock market? And how has the exchange performed in recent years in the context of foreign investor activity or turnover?
A: We engage with them on multiple fronts – the main component being the planning of road shows. We travel to foreign markets and financial hubs such as Singapore, Tokyo, Australia and the Middle East to attract investments.
We’re also planning a forum in the first quarter of next year to cover London, New York and Toronto.
At these road shows, we showcase ‘Invest Sri Lanka’ forums, and facilitate listed companies to enter the stock exchange.
The second mechanism is where we engage with foreign media such as Bloomberg and Reuters for visibility to promote the CSE and Sri Lanka’s capital markets.
The third is where the CSE encourages market intermediaries who tie up with other broking establishments to canvass business through chaperoning arrangements.
Over the past three years, due to the financial crisis, foreign investor activity reduced from 35 percent of turnover to five percent last year. However, we’re seeing it gradually moving closer to the 10 percent mark this year.
On another note, there are concerns among foreign investors due to the conversion of capital back to foreign currencies when investors move out. We faced some delays last year and that may have led to negativity. However, the CSE lobbied the regulator and cleared the backlog.
The next is the liquidity factor: here again, some foreign investors say our market liquidity, free floats and traded volumes are insufficient to warrant the larger funds to come in. This is something we’re addressing as well.
Product diversification to attract foreign investors is another mechanism. Unfortunately, we’ve been a dual product market for a long time – we simply have plain vanilla equity and listed debt. We’re addressing this by introducing new products.
Q: According to the LMD-NielsenIQ Business Confidence Index (BCI), confidence in business circles continues to fluctuate against the backdrop of economic volatility. How does the CSE navigate such uncertainties?
A: It’s important to maintain a positive outlook. Volatility in confidence levels can translate into market volatility; and for the CSE, volatility in markets presents an opportunity for investors. There’s no opportunity to make money if the markets remain static.
I believe that sentiment will improve moving forward as Sri Lanka has achieved the quickest turnaround from an economic crisis in the world. And we have showcased ourselves as one of the most vibrant democracies.
As for progression, there are uncertainties – including foreign debt restructuring, the conduct of elections and policy consistencies.
Today, it’s everyone’s responsibility to ensure that we stay the course of a reformed path. The next five years will be a period of renaissance for the country that we haven’t witnessed since independence.
So the CSE remains bullish.
https://lmd.lk/cover-story-fdi-and-economic-symphony/
