Financial sector set to beat GDP - analyst

By Sunimalee Dias

Ceylon Asset Management yesterday launched a dedicated Financial Sector Fund describing it as the next biggest investment arena with potential to grow significantly in the post-war Sri Lanka.

Ceylon Asset Management Director and Economic Advisor Michael Preiss stressing a point at the launch of the Ceylon Financial Sector Fund, a first in the sector. Others from left: Ceylon Asset Management Managing Director Dulindra Fernando, Sri Lanka Insurance Investments Senior Deputy General Manager P.P.J Perera, Deutsche Bank Head of Trust and Securities Services Vice President Tyronne Hannnan, LOLC Group Director and CEO Kapila Jayawardena and Commercial Bank Chairman Mahendra Amarasuriya. Pic. by Kushan Pathiraja.

This Financial sector fund is the first ever that is structured as an open-ended, equity fund that lets investors invest and exit at anytime. The fund will distribute tax free income from profits on an annual basis.

Partnering with Deutsche Bank AG, the Ceylon Asset Management is introducing this fund in a bid to capture the returns from the top 10 banking, finance and insurance sector (BFI) companies listed on the Colombo Stock Exchange (CSE).

Units will be offered today (October 29) at the IPO price of Rs.10 with a minimum investment of Rs.10, 000. Deutsche Bank will be the Trustee and Custodian of the fund and licensed by the SEC.

CAM also manages two other index funds namely the Ceylon Index Fund and Ceylon Tourism Fund as well as a fixed income fund i.e. Ceylon Income Fund.

In the wake of the prosperous nature of the sector and its boom that predictions were made at yesterday’s launch of the new fund of the country’s growth that is likely to achieve 10% next year, according to Ceylon Asset Management Director and Economic Advisor Michael Preiss.

He observed that today the stock and currency markets were performing best while the Sri Lankan rupee noted to have reversed its downward trend although locals continued to remain pessimistic about it.

“Sri Lanka is just in line with the second largest economy in the world,” he said noting that rupee was performing well against the yuan.

The declining interest rates in Sri Lanka, the cash rich position of banks and the fast growing economy with many projects in the pipeline have made the BFI sector, one of the most lucrative sectors in the country.

With the GDP forecast being 10% an exponential rise is expected in the GDP while the banking stocks are likely to clearly benefit from such growth mostly.

Preiss observed that in emerging economies the banking sector is growing significantly faster than the GDP.

In relation to Sri Lanka’s positioning regionally, it was noted that with a top emerging economy like India in the neighbourhood the former could serve as an offshore for South Asia.

The banking sector is likely to outperform the All Share Price Index (ASPI), Preiss believed. The BFI sector is reported to have performed 166.81% in the first three quarters of the year 2010, outperforming the ASPI which gained 106.68% to emerge as Asia’s top performer.

With a diversified exposure to 84% of BFI sector via the fund this will become strategically important.

Commercial Bank Chairman Mahendra Amarasuriya speaking on the occasion noted that the banking sector is tipped to reap benefits with the opening up of one-third of the section of the economy.

However, he noted that in the wake of declining interest rates there could be a tendency for people to be lured to companies providing rates at the double the amount currently in the market.

He observed that while the single digit interest rates could have its pros and cons the margins are likely to be affected “significantly”.

But, Amarasuriya observed that should the economy grow faster next year then “it will be wonderful.”

Commenting on figures projected he pointed out that with the current room capacity in the hotels sector at 14, 000, a projection of 700, 000 is being made while attempts to attract 2.5 million by 2016 has been termed as “absurd” unless there was an increased number of overseas investments.

CAM Managing Director Dulindra Fernando said the BFI has today outperformed the market in the past two years. As such the creation of the fund enables investors to capture returns from a portfolio that covers 84% of the market capitalization.