Early election positive for Lankan stock market: Swedish fund manager

The Sweden-based global asset management company, Tundra Fonder’s Tundra Sustainable Frontier Fund in its latest update has said that an early election would be clearly positive for Sri Lanka’s stock market.

The fund’s November update noted that the ongoing political crisis is negative for the country’s economy in the short-term. 

But the fund is of the opinion that the Colombo bourse is now one of the cheapest frontier markets, from being one of the most expensive in the past.
“Despite the risk of continuing turbulence in the short-term, we conclude that much of it has been discounted by the market,” the update stated.

Meanwhile, commenting on the investor behaviour post-October 26, the fund noted that local investors had been strong buyers.

“From a purely cynical market perspective, investors find that Rajapaksa, despite all allegations of corruption and human rights violations during the civil war, is better suited to leading the country.”

As of March this year, Tundra Fonder had US $ 400 million in assets under management and US $ 150 million in the Frontier Sustainability Fund, which had invested US $ 20 million or 12 percent of the fund portfolio in Sri Lanka.

Following is the extract from the November update relevant to Sri Lanka:

 “Many were surprised that Sri Lanka, in the midst of what constitutes a constitutional crisis, was one of the winners during the month and rose almost 3 percent. President Sirisena sacked Prime Minister Wickremesinghe in late October and appointed former President Rajapaksa as the new Prime Minister. Given the complicated history between Sirisena and Rajapaksa, where the former unexpectedly changed sides in conjunction with the presidential elections in 2015 and supported the Opposition to defeat Rajapaksa, this nomination was very unexpected. 

“However, the Opposition has argued that the changes are unconstitutional. Two votes of no confidence against Rajapaksa have passed without any action by President Sirisena. Instead Sirisena announced the dissolution of Parliament and new elections in January, more than a year before planned elections. The Supreme Court is currently investigating whether Sirisena is entitled to take these actions. At this point it seems doubtful they will allow it. 

“The situation is further complicated by both sides claiming they represent the people’s will. Earlier this year, local regional elections were held in Sri Lanka, where Rajapaksa progressed very strongly. It is likely that if elections were to be held today, team Sirisena/Rajapaksa would win. However, the accelerated pace at which they have tried to achieve this win has probably reduced support for them. 

“Regarding the market’s reaction, we conclude that local investors have been aggressive buyers since the process began in late October. From a purely cynical market perspective, investors find that Rajapaksa, despite all allegations of corruption and human rights violations during the civil war, is better suited to leading the country. 

“The current political crisis is of course negative for the country’s economy in the short term. Over the last five years, Sri Lanka has faced some criticism in terms of its economic policy, which means that the Sri Lankan stock market is now one of the cheapest frontier markets, from being one of the most expensive in the past. Despite the risk of continuing turbulence in the short term, we conclude that much of it has been discounted by the market. An early election would be clearly positive for the stock market”.