Post-war growth momentum to continue in 2012 - former DG, SEC

By Lalin FERNANDOPULLE

Sri Lanka has every reason to perform well in 2012. Our growth momentum will continue next year. Economically-able countries such as China, Russia and many more have intensified their interest in Sri Lanka, said former Securities and Exchange Commision of Sri Lanka Director General and currently Group Managing Director LR Global, an asset management company Channa de Silva .

Channa de Silva

He said, “Sri Lankan businesses will look at new markets in countries such as India, Bangladesh, Indonesia, China and Russia. The government is providing attention to infrastructure. Key regional cities together with upgrading of general infrastructure including the transportation system will be of much value.

"As Sri Lankans we need to have a positive mindset and engage in value creating activities in order to support as well as benefit from the development agenda of Sri Lanka," he said.

“The Sri Lankan economy is now getting closely integrated to the global economy. Our key industries such as apparel have US and Europe as their main markets. More than 75 percent of the industry is linked to buyers in the US and Europe that have large chains of outlets or department stores, which are now challenged given the state of the US Economy.

Therefore not only Apparel all other exports going to the US and Europe face the same challenges” , De Silva said.

The same can be said of the tourism industry too. Where our large inbound travel markets were Germany, UK, Scandinavia, and the rest of Europe. It takes time to divert to other countries and get tourists from emerging economies like China and the Russian block.

The silver lining is that Sri Lanka can benefit is that when there is pressure on prices of goods marketed in the West they look at other options to source these goods from the lesser expensive countries.

"Now wages and other overheads in production chain has increased the dramatically in Taiwan, Thailand, Philippines, and China and they will shift some of them to countries like Sri Lanka , Cambodia and Vietnam. So there is opportunity for us to benefit from the current economic challenges if we position the country well.

Since we are at a low base and are a small economy it has insulated us to a certain extent. The private sector has done well to withstand global pressure. On an overall basis the country has done well given the global dampness.

He said: “The capital market of any country reflects the health and well-being of the underlying economy of the country. Post war economic development and expectations drew the market to very high levels. In 2009 there was 125 percent return and 2010 100 percent return delivered through the stock market. Therefore when 2011 dawned the markets was priced 225 percent higher in value within an 18-month window.

A part of it is economic optimism and buoyancy that created the re-rating of the market to push it to a higher multiple in terms of valuation. However, in the rush the market also became irrational. Certain quarters exploited this to their advantage and pushed certain stocks, which did not have any fundamental support or reason to very high levels. This was mainly for stocks, which had low free float, small in value (Penney socks), low market capitalisation, and shares that had been dormant or under performing.

These shares went up phenomenally and created a bubble. Foreign investors as well as the local institutional investors observed this development with concern and stayed away from the market. Therefore, the market lost support and turnover of the market fell drastically and thus the stock market prices of almost all stocks came down recording a negative return in the market for 2011. Many retail investors have also lost substantially.

Furthermore, the issues pertaining to price bands, broker credit and the SEC related issues have not been complimentary to performance.

“2011 was more challenging from a global standpoint. The year will also be remembered as a meltdown year for Greece, Spain and Europe in general. This is in the backdrop of an economically challenged US and a stagnant Japanese economy. Therefore economically-able countries went through a difficult 2011. The new economic power continued to shift to China, India, Russia and Brazil”, de Silva said.

For Sri Lanka, our economy continued to grow as we had so much to catch up. Although the global economy did not help us, the local economy powered by local entrepreneurs continued on the optimistic growth trajectory that they initiated after the eradication of terrorism.

As per the stock market investors it had decided to consolidate prices at these levels. In the absence of foreign investors, local investors, kept the liveliness of the stock market.

He said: “The role of regulators is to protect investors. They need to ensure that a fair and proper Stock Market is operational in the country. Regulators through their work will support the development of the stock market.

In an unprecedented manner 2011 witnessed SEC moving through troubled waters. The resignation of the Chairperson as well as the Director General will narrate the complexities involved.

The regulator must be very firm in its approach and must elevate itself to a role that commands much respect in the market. The Regulator must ensure fair conduct of investors in the market making sure there is no manipulation or Insider dealing in the market.

With regard to measures to boost the growth of the market De Silva said the economy needs to improve further. The confidence of market investors needs to improve. To boost the economy the creation of new enterprises, low interest rates, access of funds to entrepreneurs to start or expand business, low inflation, and carefully utilising debt and government curtailing expenditure along with rationalisation and sequencing the government expenditure on development projects will be critical for the economy. From the sideline all investors are watching these indicators.

The private sector needs to continue with the momentum of growth and keep expanding whilst new Entrepreneurs should start businesses. The creation of new employment should be the key. Earning foreign currencies through exports, and tourism should receive priority status.

The government needs to recognise the private sector and ensure that all assistance is provided to this sector. We need also to attract foreign investors for direct investment as well as Portfolio Investment. Therefore we need to strategically take the message of “Sri Lanka is doing well, and it is a great place to do Business”, across the world.

In regard to the stock market, The Colombo Stock Exchange should spearhead development efforts in bringing in large companies having good potential to be listed whilst educating people on investing in the market. There must be many road shows held across the world to showcase Sri Lankan stock market. Foreign portfolio managers should be invited to the country to showcase the potential of the country.

“Some of the underlying regulations such as price bands, broker credit, investors access to finance and transaction cost including commission structures for internet transactions should be revisited and revised positively”, he said.

”The SEC should focus on ensuring that regulations are adhered in the market and the market must be devoid of any malpractices and to ensure the protection of investors in the market. These measures will raise investor confidence,” he said.

Authorities say they expect China’s average minimum wage to grow at least 13 percent annually. The Sichuan province in southwest China has increased the minimum wage to attract workers amid rapidly rising cost of living. Sichuan raised the minimum monthly wage by 23.4 percent starting on 1 January, State news agency Xinhua said.

That is one of the biggest increases, with most other provinces raising wages in line with government advice of 13 percent.