Mobius Says He's Deterred by Low Liquidity in Sri Lankan Stocksby
Sees potential for Sri Lanka to attract much larger investment
Says favorable tax environment, diversification needed
Large family-controlled stakes in Sri Lankan companies limit liquidity in the stock market, said Mark Mobius, chairman of Franklin Templeton’s emerging markets group, adding that this deters the fund from investing in the South Asian economy.
“We know there is much interest in Sri Lanka as an investment destination, but not only do the political and economic conditions need to be right, but shares must be readily and easily available for us to purchase, which isn’t the case right now,” Mobius wrote in a Dec. 17 blog after a visit to the island nation.
Sri Lanka’s market capitalization is about 24 percent of gross domestic product compared with 84 percent in India and 32 percent in Pakistan and Vietnam, according to data compiled by Bloomberg. Prime Minister Ranil Wickremesinghe said last month that the government plans to sell stakes in state companies and reform management structures to boost efficiency.
The nation also needs a more favorable tax environment -- without the threat of retroactive taxes -- and lower tax rates, and must continue to modernize infrastructure as well as diversify the economy, Mobius wrote.
The benchmark equity index is down about 6 percent so far in 2015, poised for its first yearly decline since 2012, and the rupee sank to a record low. Sri Lanka’s budget announced Nov. 20 forecast a fiscal deficit of 5.9 percent of gross domestic product, narrowing from 6 percent this year. Wickremesinghe is aiming to increase investment and revenues to shrink the shortfall to 3.5 percent in 2020.
"We think the country has the potential to offer more and attract much larger investment, and we hope to be part of that pool," Mobius said.