Risk-averse Lankans must diversify investments, says Fitch economist

• Investment levels not enough to secure ageing population
• Difficulty in accessing equity a barrier to growth
• Clear data on economy lacking

By ShiranIllanperuma

With 20% of the country’s population set to be above the age of 60 by 2020, and investment patterns that indicate a bias towards low return fixed income savings, experts at the Sri Lanka Investment Fund & Asset Management Forum organised by Fitch Ratings, expressed concern over the future wellbeing of the economy.

Comparing Sri Lanka’s fledgling economy with that of mammoth China’s, Associate Director at Fitch Ratings Li Huang said that the island nation is comparatively conservative in investment, leading to stability at the expense of poor overall growth and a potential social burden as the population ages.

“In China the savings rate is more than 50% and citizens engaging in diverse asset allocation strategies. There is a strong mentality of saving and investing which is not yet seen here in Sri Lanka,” said Huang.

In Sri Lanka nearly half of all assets are tied-up in fixed income bonds leading to smaller returns that are vulnerable to erosion by inflation. This compared to the global average where only around 30% of assets are in bonds. 

Sri Lanka also presents a miniscule equity market when compared to global averages. 

CEO and Country Head of Fitch Ratings, Mahinda Wickramasinghe cited the difficulty for investors to access equity in the market for contributing to lacklustre growth in the post-war era.

China by comparison allows easy access to equity through online e-purchases, a feature that has fuelled growth though some experts say such ease of purchase has led to volatility.

According to JB Securities Managing Director Murtaza Jafferjee who also spoke at the forum, a further barrier to investment diversification is the relative lack of data freely available to the public.

“There needs to be detailed segmental and granular analysis available out there for investors to feel comfortable enough to make bold decisions,” says Jafferjee.

The two-year-old annual forum was organised by international ratings agency Fitch Ratings. Speaking on the rationale for introducing this forum, Wickramasinghe said that the time was right for Fitch to share its internationally accrued knowledge to local investors.

Urging investors to begin walking the talk on developing the economy which has lagged behind growth projections since the end of the war, Wickramasinghe said, “Our intention is to transfer all the knowledge we have gained from developed markets to Sri Lanka.”