2014 turning point for Lanka’s equity market: Michael Preiss

• 2014 could lead the way for next 5 years to potentially be one of the best periods for capital market since independence

• Interest rate below 8%, Price Earnings ratio standing at 11, average country growth rate being 7% a “powerful” combination

• Stresses that risk of not being in the market and investing is higher than risk of short-term volatility
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By Shabiya Ali Ahlam
A top expert from the United Kingdom expressed confidence in 2014 being a vibrant year for the nation’s equity market and urged locals to participate if they wish to benefit from this growth story.

Visiting Director and Economic Advisor of Ceylon Asset Management Michael Preiss noted that when the “compelling” evaluation of the country’s growth is coupled with the fast-paced economic development, 2014 will not only be a turning point for the local equity market but will also mark the start of a very positive period for the nation.

“2014 is a turning point for Sri Lanka. It could lead the way for the next five years to potentially be one of the best periods since independence. With the civil war over and the nation having passed the adjustment period, the road is now free for the capital market to progress,” Preiss told the Daily FT in an interview.

From a market development point of view, he noted the Colombo Stock Exchange (CSE) is putting a lot of emphasis on new product development to bring more depth and liquidity to the market.

Preiss, who has over 17 years of experience in global financial markets of New York, London, Paris, Hong Kong, Dubai and Singapore and is a Board Member of the American Academy of Financial Management (AAFM), said this potential was an element that many foreign investors would positively evaluate and conclude as good development since when looking at the Debt to GDP ratio, Sri Lanka stands out from other emerging nations.

When questioned on the importance of increased participation in the equity market, Preiss said: “In an economy that is fundamentally growing, the risk of not being in the market and investing is higher than the risk of short-term volatility. This is why there has to be indexation. Over time it is always better to be in an economy that is growing in the equity market than in cash.”

Highlighting the factors that make investments attractive for 2014, he said the interest rate being around 8% and the Price Earnings ratio standing at 11, along with the country growing at an average rate of 7%, is a “powerful” combination.

However, Preiss opined that despite the fall in cost of money which could lead to market expansion, locals might miss the opportunity of investing in the equity market because in addition to the interest rates, PE ratio and the economic growth combination not being clear, investors would perceive that the stock market performance in the last two years would reflect in 2014 as well.

“The majority fail to appreciate that in the last two years there were very interesting and important changes. One is that the CSE is developing the market by conducting road shows amongst many other initiatives. They are doing all the right things while also attempting to revalue the market at the same time,” asserted Preiss.

To increase participation, he stressed on the need to provide more investment options and for the Government to focus greatly on investor education.

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