Sri Lanka's Short Term Outlook Is Hazy: Limited Pockets of Value Present

Frontier and emerging markets (Vietnam)

Dylan Waller

Cross Asset Strategy

Sri Lanka's equity market is currently in an attractive state following poor performance in recent years.  MSCI Sri Lanka IMI trades at 8.0x PE and 0.8xPB as of the end of September, and as I mentioned in <a href="https://www.smartkarma.com/insights/banking-on-sri-lanka" target="_blank" data-smartkarma-citation="insights:25670" rel="noopener">Banking on Sri Lanka, some of the countries banks are trading well below book value. </a> Sri Lanka's tourism industry will be a key driver of growth in the coming years.  However, tourist arrivals began to decline this May, following the terrorist attack that occurred this April, which will disrupt the country's economic growth in the short term.
The IMF projects that Sri Lanka’s economic growth will still reach 3.6% this year, which will be driven by a recovery in agriculture and manufacturing.
One major thorn that I previously addressed in <a href="https://www.smartkarma.com/insights/sri-lanka-s-short-term-outlook-is-hazy-limited-pockets-of-value-present" target="_blank" data-smartkarma-citation="insights:26903" rel="noopener">Sri Lanka's Short Term Outlook Is Hazy: Limited Pockets of Value Present</a> was the fact that the country's currency performed very poorly during 2018.  However, the currency is now in a relatively stable position, which has been supported by the increase in foreign exchange reserves this year.
The main potential long term catalysts for Sri Lanka includes the transition of its economy, which needs to be driven by FDI that focuses on new industries.  The country's current export structure is very poorly diversified given that textile and agriculture products both collectively account for 66.4% of the country’s total exports. 
Sri Lanka is well worth monitoring for value investing opportunities in the banking sector, investing in the bond market ( <a href="https://www.smartkarma.com/insights/sri-lanka-hope-amidst-turbulence" target="_blank" data-smartkarma-citation="insights:26286" rel="noopener">Sri Lanka: Hope Amidst Turbulence</a> ), or by investing in companies that are expanding operations outside of Sri Lanka and targeting the FMCG and healthcare sectors ( <a href="https://www.smartkarma.com/insights/sri-lanka-market-update-hemas-holdings-sails-smoothly-through-the-hazy-macro-political-picture" target="_blank" data-smartkarma-citation="insights:29246" rel="noopener">Sri Lanka Market Update: Hemas Holdings Sails Smoothly Through the Hazy Macro/Political Picture</a> ).

Sri Lanka's equity market is currently in an attractive state following poor performance in recent years.  MSCI Sri Lanka IMI trades at 8.0x PE and 0.8xPB as of the end of September, and as I mentioned in Banking on Sri Lanka, some of the countries banks are trading well below book value.   Sri Lanka's tourism industry will be a key driver of growth in the coming years.  However, tourist arrivals began to decline this May, following the terrorist attack that occurred this April, which will disrupt the country's economic growth in the short term.
The IMF projects that Sri Lanka’s economic growth will still reach 3.6% this year, which will be driven by a recovery in agriculture and manufacturing.
One major thorn that I previously addressed in Sri Lanka's Short Term Outlook Is Hazy: Limited Pockets of Value Present was the fact that the country's currency performed very poorly during 2018.  However, the currency is now in a relatively stable position, which has been supported by the increase in foreign exchange reserves this year.
The main potential long term catalysts for Sri Lanka includes the transition of its economy, which needs to be driven by FDI that focuses on new industries.  The country's current export structure is very poorly diversified given that textile and agriculture products both collectively account for 66.4% of the country’s total exports. 
Sri Lanka is well worth monitoring for value investing opportunities in the banking sector, investing in the bond market ( Sri Lanka: Hope Amidst Turbulence ), or by investing in companies that are expanding operations outside of Sri Lanka and targeting the FMCG and healthcare sectors ( Sri Lanka Market Update: Hemas Holdings Sails Smoothly Through the Hazy Macro/Political Picture ). 

Sri Lanka Government International Bond (SRILAN GOVT)

Banking on Sri Lanka: October 2019 Update