ASSET MANAGEMENT
Compiled by Yamini Sequeira
PORTFOLIO DIVERSIFICATION
Dhanushka Fernando cites a host of investment opportunities in Sri Lanka
Q: What investment trends and opportunities do you believe are worth capitalising on?
A: Renewable energy stands out as one of the most promising sectors due to the government’s strong push towards sustainability and Sri Lanka’s rich natural resources – such as abundant solar and wind energy.
Infrastructure development is another key area, particularly in transportation, logistics and utilities. As Sri Lanka improves its transport infrastructure, investments in logistics services – such as warehouses, supply chain management and distribution – could be profitable.
The country’s technology and innovation sector has seen rapid growth, especially in IT services, software development and e-commerce. The rise of digital transformation across industries is opening doors for investment in tech startups and established tech companies, particularly those involved in data analytics, AI and fintech.
Tourism, another industry with immense growth potential, is beginning to rebound after the setbacks of recent years. Export oriented industries also hold significant promise, particularly in the apparel, textiles and agriculture sectors. Sri Lanka has the potential to establish itself as a hub for value added agricultural products including processed foods and beverages.
Green finance is an emerging area within the global investment landscape and Sri Lanka is no exception. The growing focus on sustainability and responsible investment is driving demand for green bonds, sustainable investments, and environmental, social and corporate governance (ESG) focussed funds.
With the increasing adoption of digital technologies, investments in e-commerce, fintech and digital infrastructure are on the rise. E-commerce in particular is experiencing rapid growth as consumer behaviour shifts toward online shopping. Moreover, real estate remains a traditional yet lucrative investment option.
Q: How have inflationary pressures affected asset allocation strategies among local asset managers?
A: The high inflationary environment in the country has prompted local asset managers to adapt their strategies by shifting towards more conservative and risk averse approaches. To safeguard portfolios from the eroding effects of inflation, many managers are increasing their portfolios to inflation hedged assets.
Gold, real estate and inflation linked bonds are now viewed as key assets in this environment, as they traditionally perform well during inflationary periods. Additionally, diversification has become a crucial strategy in asset management.
Value investing is another trend gaining traction. Local asset managers are focussing on undervalued stocks with strong fundamentals, believing that such investments will appreciate over time – especially as the economy stabilises.
Furthermore, many asset managers are leaning toward short-term investments with higher yields to hedge against inflation.
Q: What measures are being taken by regulatory bodies to enhance the transparency and governance of Sri Lanka’s capital markets?
A: Regulatory bodies such as the Securities and Exchange Commission (SEC) have introduced several measures aimed at improving the transparency and governance of capital markets. One major initiative has been the strengthening of corporate governance codes.
Another key measure involves enhancing disclosure requirements for listed companies. The regulator is also focussed on improving market surveillance by implementing advanced surveillance systems.
Furthermore, the SEC is actively promoting investor education programmes to empower both retail and institutional investors.
Q: How are local asset managers adapting their investment strategies in response to global market volatility and interest rate changes?
A: The growing uncertainty in global markets due to factors such as geopolitical tensions and rising interest rates has prompted many asset managers to reduce their exposure to high-risk investments.
Instead, the focus is on more stable and defensive assets, such as blue-chip stocks and government bonds. Diversification has also become a key strategy for asset managers to mitigate country specific risks while investing in international markets to tap into growth opportunities outside Sri Lanka.
Hedging strategies are another response to global volatility – by hedging their investments, asset managers can shield their portfolios from global economic risks such as fluctuations in oil prices or currency volatility.
Actively monitoring global economic indicators – such as changes in interest rates and inflation expectations – is becoming a standard practice among Sri Lankan asset managers.
Risk management frameworks are being enhanced to ensure that potential risks are promptly identified and mitigated. Asset managers are employing sophisticated tools to analyse market trends and economic data.
Additionally, alternative investments such as private equity, venture capital and real estate are being explored, as a means to diversify portfolios and generate higher returns.
Q: And what challenges do local asset management firms face in attracting foreign investments?
A: They face several challenges in pursuing foreign investments. Economic uncertainty, exacerbated by the recent economic crisis, has eroded investor confidence, making the market appear riskier.
Complex regulatory frameworks and bureaucratic procedures create additional barriers, deterring potential foreign investors. Furthermore, weak corporate governance and a lack of transparency in the market can raise concerns about accountability and fairness.
The relatively small size and limited liquidity of the market also make it less appealing to large-scale foreign investors. Moreover, political instability, policy uncertainty and a higher country risk premium amplify perceived risks, further discouraging foreign capital inflows.
