Sri Lanka Stocks, Asia’s Best Performers, On High

30th December 2009, www.bloomberg.com, By Anusha Ondaatjie

Sri Lanka’s stocks, Asia’s best- performing in 2009, may extend gains as the end of a 26-year civil war and low interest rates help boost economic growth, the island’s biggest fund manager said.

The Colombo All-Share Index, which rose 0.9 percent to a record of 3,385.55 today, may climb to 3,500 in two months, said Bimanee Meepagala, an analyst at Eagle NDB Fund Management Co., the nation’s biggest non-state fund. The gauge has jumped 125 percent this year, the world’s second-best gainer after Russia.

“The market was re-rated on post-war optimism,” said Meepagala, who manages the equivalent of $236 million. “Strong economic growth and corporate earnings will help the market continue its upward momentum.”

Sri Lanka’s $41 billion economy is expected to grow as much as 6 percent next year from an estimated 3.5 percent expansion in 2009, the central bank said in October. President Mahinda Rajapaksa quashed an uprising by Tamil separatists in May and the island has drawn the interest from investors including Templeton Asset Management Ltd.’s Mark Mobius and Jim Rogers, author of books including “Adventure Capitalist.”

The central bank has cut lending rates five times this year to a five-year low as inflation plunged from a record high in June 2008. Rajapaksa has called a presidential election for Jan. 26, two years before his mandate expires, as he seeks to capitalize on the end of the war with the Liberation Tigers of Tamil Eelam in May.

Economic Growth

Gross domestic product expanded 4.2 percent in the third quarter from a year earlier, the fastest pace in 2009, after gaining 2.1 percent in the three months to June 30, the statistics department said Dec. 18. Sri Lanka’s exports in October declined 4.9 percent, the least this year, as orders increased for the South Asian island’s tea and rubber. Tourist arrivals in Sri Lanka have increased since June.

“There are still some big macroeconomic challenges but what we’ve seen at the end of the civil war was a fundamental shift in the circumstances,” said Peter Taylor, a fund manager at Aberdeen Asset Management Ltd. in Singapore, which overseas about $25 billion in Asian assets. “We still find some good value in the banking sector.”

Aberdeen holds shares of Commercial Bank of Ceylon Plc , the country’s biggest non-state lender, and John Keells Holdings Plc, which has the largest weighting on the benchmark index.

Selling by Raj Rajaratnam, the billionaire Galleon Group LLC founder accused of insider trading, won’t cause an “overhang” on the Colombo Stock Exchange “as there are plenty of buyers in the market,” Eagle NDB’s Meepagala said.

Mobius, Rogers

Mobius, chairman of Templeton Asset, said last month he’s seeking private equity or strategic investments in Sri Lanka after the end of the war. Rogers also said in August the nation’s stocks may offer better returns as the government is expected to spend more on infrastructure and agriculture.

The International Monetary Fund, which granted Sri Lanka a $2.6 billion loan in July, expects the island’s economic growth and credit demand to pick up.

John Keells Holdings, also Sri Lanka’s biggest diversified company, and Aitken Spence Plc, the island’s largest operator of resorts, are also likely to post gains in earnings next year, Meepagala said.

To contact the reporter on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net