SL is best in valuations; thinly insulated from coronavirus

The coronavirus ( COVID- 19) has brought about risks that rattled foreign investments, with analysts saying that near- term business activity and consumption is expected to decline as many people rein in their movements as a precautionary measure, impacting emerging market growth.

So far, data shows that most broad emerging- markets indexes lost between 6 per cent and 7 per cent which is lower than what total market indexes fell which is nearly 12 per cent.

Foreigners have largely sold at the Colombo Stock Exchange (CSE) in the first two months of this year but analysts say that it’s mainly relating to the currency fluctuations, economic instability and political developments rather than the coronavirus.

"Investments in emerging markets involve heightened risks related to the same factors and funds are worried about the fiscal discipline and the impending general elections,” an analyst told the Business Times. Parliamentary polls are expected on April 25.

Tundra Sustainable Frontier Fund in an update last month said that the April 2019 uncertainty that characterised the country has been transformed into optimism after the Presidential elections. “We note that the tourism industry has recovered faster than expected, although we believe that some of the high- paying tourists have switched to being more price-conscious.”

Tundra said that based on risk- reward, they would currently place Sri Lanka as perhaps the most interesting of their major markets given the very low expectations, the depressed valuations in the equity market ( around 100 per cent upside to the 10- year average P/ BV valuation), the relatively cheap currency and the probability of decent high profit growth from the second half of 2020.

They say that the problem with the stock market remains the low liquidity, which created problems for foreigners who have sold in recent years and which will create problems when they again want to position themselves. For investors with a 5- 10 year investment horizon, it is likely to be a good entry point while leftover selling from disgruntled foreigners remains on offer.