Aberdeen cautions investors over Lankan investments

Says emerging and frontier markets offer value but asks investors to be careful of SL Points out SL does not have fiscal space to support market Says int’l investors awaiting SL’S new IMF deal

Sri Lanka was singled out on the world stage yesterday when the leading global asset manager, Aberdeen Standard Investments advised the investors to “be careful” about frontier markets such as the island nation, even though Asia and emerging markets offer value at present.

Pointing out that there is “a lot of value” across a number of markets, Aberdeen Standard Investments Asian Sovereign Debt and Fixed Income Asia Head Kenneth Akintewe stressed that frontier markets is an area the investors should be cautious of and a manifestation of that would be a country such as Sri Lanka.

“They started the year on the wrong foot,” said Akintewe while discussing the opportunities in Asian and emerging markets, in an interview with CNBC.

“They had easy fiscal policy before the crisis hit and when the COVID-19 crisis did hit, they had to try and support the market. They really don’t have the fiscal space to do that and we are going to see debt-to-gdp rising above 90 percent as we go to next year,” he said.

According to Akintewe, the sovereign bond priced around 60 to 65 on a 10-year external debt showcases that the investors have been very worried about Sri Lanka’s ability to refinance debt in the coming years.

He pointed out that expected from policymakers is the announcement of a new International Monetary Fund (IMF) plan. “This is a key thing that we have been watching for. Unfortunately, that (announcement) has been delayed by the political side. They don’t have that much time,” Akintewe said.

He stated that it is a “dangerous” strategy by the policymakers, to wait for the elections for the announcement, even though the new IMF programme may not even fulfil the entire expectations, as the agency might be of the view that a debt restructuring is necessary.

“It is going to be a long tough rolling. That is one of the markets that we are a little bit more cautious,” said Akintewe.

Meanwhile, standing out amongst other Asian frontier and emerging markets this year is Vietnam, due to its economic resilience amid the coronavirus outbreak, according to Fitch ratings. The credit rating agency said in a new report that its success in containing the outbreak should support Vietnam’s ‘BB’ sovereign credit rating.

The country was one of only four Fitch-rated economies in the Asia-pacific region expected to achieve positive economic growth in 2020.

Since the Colombo bourse recommenced trading on May 11, after a 51-day break, the foreigners have been heavy net sellers while the local high-net-worth investors and institutional funds have been on the buying side.