`Sri Lanka showing low investor participation in stock market`

‘Sri Lanka showing low investor participation in stock market’
May 11, 2015, 5:51 pm
By Ifham Nizam
Sri Lanka has one of the lowest participation rates of domestic
investors in the capital market, although there are some
765,000 CDS accounts here, a renowned chartered financial
analyst said.
"The number is around 583,000 if you exclude duplication due
to joint accounts. A recent study reveals around 350,000 are
plantation worker accounts and another 100,000 are students’
accounts that are dormant. So in fact active trading happens
in only about 25,000 CDS accounts, said chartered financial
analyst Ravi Abeysuriya who is the Group Chief Officer/
Director Candor Equities.
He said a government policy change is required with regard to
building the capital market. "We have to get Sri Lanka into
the MSCI Emerging Market Index, which could be a major
catalyst to attract foreign investors to our capital market. This
can be achieved by listing two large profitable state
institutions and establishing a public float of over 20 per cent.
"USD 9.5 trillion in assets are 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 said.
Abeysuriya explained what people in Sri Lanka miss out by demonstrating the "The Power of investing." He said
Rs.10,000 invested by a risk adverse investor in the NSB savings account in 1985 will be worth only Rs.2,379 in
2015 even after compound interest due to loss of purchasing power from inflation. Whereas, the same Rs.10,000
invested in the ASPI by a risk taker would have given him or her the ability to buy Rs.35,421 worth of goods or
services in 2015 after inflation, that is 3.5 times more.
However, he cautioned on the risk of investing without a long term perspective as stock markets "go up" as well
as "down" and therefore require the staying power to wait until the markets recover over time.
Abeysuriya also said the potential for a prudent investor who invests in a portfolio of fundamentally sound stocks
taking advice from a professional investment advisor who has the client’s interest at heart, will have returns
which will be several times more.
Speaking at a seminar titled ‘Stock Market: Regulatory Framework and Investment Challenges’ organised by the
Ceylon Chamber of Commerce, last Friday, he said the industry had lost investor trust, which he terms largely
due to lack of investor confidence and trust in Sri Lanka’s capital market.
He stressed: "To restore investor confidence and trust and attract more long term savers to the capital market we
need a paradigm shift in the way our investment advisors treat their clients."
Abeusuriya said in the investor trust study carried out in 2013 and in 2014 it was found the financial services
industry is the least trusted.
"I encourage SEC (Security Exchange Commission) or CSE (Colombo Stock Exchange) to carry out a similar
market study to find out the level of confidence domestic investor have in our stock market, he added.
He also said that of the financial services industry, asset management was found to be the least trusted, adding
asset managers don’t yet have this level of respect and trust from society.
Abeysuriya strongly believes that everyone should become financially literate and make use of the power of
investing to transform their lives.
Answering questions on the sidelines of the seminar, he said for most people the capital market is the means to
participate as an owner in the growth of the companies that make up the Sri Lankan economy.
He said what makes it powerful is that companies are motivated to grow their businesses over time.
"Stock ownership is the way for individuals to participate in that growth. Of course, investing requires optimism
about the future opportunities. It requires investing wisely, taking a reasonable amount of risk and a long term
view and most importantly, getting professional help, he added.
He said that pension reform will increase long term saving and "institution capital".
Sri Lanka, he added, is the gateway to India. India will become world’s largest economy and will have the largest
population. Foreign investors will continue to surge to India as reforms by Prime Minister Narendra Modi take hold
and investors search for growth. (India stock up more than 20 per cent last year)
"The magnitude of the impact depends on the commitment to reform by all stake holders, Abeysuriya added.
CCC secretary general/CEO Mangala Yapa, SEC deputy director general Dhammika Perera and CSE Head of
Research Nishantha Hewawitharana also spoke.