Sri Lanka’s small stock exchange has become one of the world’s top performing bourses as investors reap the peace dividend from the end to the island’s bloody ethnic conflict.
Investors are banking on renewed economic strength and profits in the country that emerged in May from a bloody and protracted civil war which claimed between 80,000 and 100,000 lives over nearly four decades.
"All the economic indications are in the right direction but the end of the war has been the key factor" in the market’s performance, said Shivantha Meepage, analyst at Acuity Stockbrokers in the capital Colombo.
Tourism-related stocks have been faring particularly well on the back of expectations that more foreign holidaymakers will visit the country’s golden sandy beaches, picturesque tea-growing mountains and ancient heritage sites.
Infrastructure-related shares have also been performing strongly on the back of plans by the government to rebuild Sri Lanka’s war-ravaged northeast.
The positive news has helped make the stock market Asia’s best performer and just behind Peru’s Lima in the global stock market rankings.
So far this year, the All Share Price Index (ASPI) has recorded a 110 percent increase after sliding 41.57 percent last year, when government forces and Tamil separatists were locked in what seemed an unwinnable war.
"The ASPI is one of the best performing indices in the world," said Tushara Jayaratne, Business Development Manager of the Colombo Stock Exchange.
But with daily turnover a relatively paltry 10 million dollars, it’s still a dot on the global map for most investors. In fact, nine billion dollars could buy all the 238 companies listed on the bourse.
"For all the good news, Sri Lanka is still a tiny speck for a big-time foreign investor," said Channa Amaratunga, director at CT Capital, an investment advisory company.
The Central Bank of Sri Lanka just raised its growth forecast for 2009 to 4.5 percent from an earlier estimate of 2.5 percent, bolstering investor hopes of stronger economic activity.
A sharp fall in interest rates is also routing more money into equities, analysts say.
"The economic outlook is better since the war ended," said CT Capital’s Amaratunga.
Many people who have put money in the market are small investors and analyst Mahesh Peiris, a director at Asia Securities, says there is "a strong element of speculation" in the bull run.
Sri Lanka’s separatist Tamil Tigers took up arms in 1972, five years before the country ended a socialist-style system to become the first in South Asia to embrace a free-market economy.
An unprecedented 2.6-billion-dollar IMF bailout for Sri Lanka recently also galvanised hopes that the country may be on the road to recovery.
Sri Lanka’s annual inflation rate was running at a record low of 0.7 percent in September, official data showed.
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