Sri Lanka is one of the most fascinating and drop-dead gorgeous countries I have ever visited, the island once known as Serendip by ancient Umayyad Arab sailors/ruby merchants and Ceylon by the colonial Dutch and British who once ruled the island, an emerald tear drop in the Indian Ocean. I have a special bond with Sri Lanka because my late mother, an artist, used to spend her summers painting in the exquisite resort of Nuwara Eliya when I was a teenager in the early 80’s before the ghastly 26-year civil war devastated this magic land. So I was thrilled when my friend Ruchir Desai, fund manager of Hong Kong’s Asian Frontier Capital (AFC) tripled his weight in Sri Lanka from 5% to 14%.
When I last met Ruchir for coffee at the Ritz DIFC terrace (oops, it should have been tea), he told me that he expected the Commercial Bank of Ceylon shares to rise 50% in the next 12-months. As an investor in bank stocks (note Citigroup, one of my fave New York money center banks in the past year, is now trading at 88.72, up 37% in the past year). I passed this invaluable financial intel Ruchir gifted me to the three Sri Lankan ladies I have adopted as my sisters. Thank you Sheila, Anola and Naufarah! It is so nice to hear good news from Sri Lanka as I was last there on the eve of its 2022 political crisis, rupee meltdown, petrol lines and IMF bailout.
Sri Lankan equities are priced inexpensively at 8X earnings, down from 14X three years ago. As Ruchi puts it, the combination of cheap valuations, accelerating earnings growth and political stability after the election of Anura Kumara Dissanayake as President is a fantastic combination and a compelling argument to allocate money now to this exciting Asian frontier market.
The IMF program is rock solid, the external debt restructuring is over and the central bank governor in Colombo, whom Ruchir regularly visits on his company calls to SL is one of the most respected monetary mandarins in Asia. After five difficult years, the growth cycle has finally begun in Sri Lanka with a stable GDP, rising EPS/margins, the proverbial sweet spot for equities outperformance.
Colombo is on the eve of a historic valuation rerating and I do not intend to miss this frontier market Xanadu in 2025, thanks to Ruchir, my Asian frontier market sherpa. I can attest from personal experience that tourism, banking and logistics are quintessential growth industries in Sri Lanka. Strangely enough, I was a student of Raj Rajaratnam when he was a finance TA at Wharton two decades before he became a star technology hedge fund manager at Galleon and Sri Lanka’s only billionaire in New York before his fall from grace in a sordid insider trading scandal.
While I preferred to stay at the historic Galle Face Hotel, I was stunned by the number of young Indian and Chinese tourists who crowded the casinos in the five star steel and concrete hotel monstrosities on the Colombo seafront. Hopefully, the government’s current focus on fiscal consolidation and reform momentum continues to deliver a multi-year bull market in Sri Lankan equities as the Field Marshal, Shaz Speed and Aurie have delivered in Pakistan since the exit of Imran Khan. Ruchir is also my jungle guide for Pakistan, Central Asia, Iraq and Vietnamese equities in addition to SL. I must rename my friend the bionic $6-Million Man LOL.
My 2-paisa suggestions to the Colombo stock exchange. One, you need to do everything in your power to boost liquidity before I can seriously help you attract Gulf family office money or institutional capital to SL. Two, the emerging debt market’s heavy hitters in New York do not take kindly to investing in the bonds of a country named the Democratic Socialist Republic of Sri Lanka as it sounds eerily similar to Zohranomics LOL.
Also published on Medium.
