10 March 2021
The Emerging Asia Pacific Capital Markets: Sri Lanka
Sri Lanka’s capital markets face many challenges. To address critical needs, the country’s master plan aims to attract global investors, develop new financial instruments, and improve market infrastructure.
The Emerging Asia Pacific Capital Markets: Sri LankaRead more (PDF)
The capital market of Sri Lanka consists of government securities, stocks, and corporate bonds. All financial instruments have a combined value of about USD 66.3 billion as of July 2020. Government securities contribute the most, with about 63% of the economy. Government securities are issued in both Sri Lankan rupee (LKR) and foreign currency denominated securities.
The current stock market formed in 1985 and was later renamed the Colombo Stock Exchange (CSE). The CSE currently has two indices, and the main securities traded include ordinary and preferred shares, close-ended funds (unit trusts), and corporate debentures. Currently 287 entities are listed on the CSE, with stocks contributing 16% of the economy.
The corporate bond market became active in 2013, with the introduction of incentives from the government, including the exemption of interest income received from listed debt from income and withholding taxes. The market capitalization of the listed corporate debt market reached LKR 257.9 billion in July 2020. The Securities and Exchange Commission (SEC) and the CSE have focused on expanding the contributions made by corporate debt in the capital market.
The CSE faces many challenges, including the need to increase corporate listings, liquidity, and foreign investor participation as well as to broaden the depth of financial instruments. A master plan has been developed with the SEC to develop the Sri Lankan capital market to be on par with global exchanges, beginning with the South Asia region. Importance has been placed on attracting global investors and developing new financial instruments. Development of capital market–related infrastructure has included measures to set up and implement a risk management system, a delivery versus payment settlement method, and a central counterparty clearing house. The SEC has also facilitated the introduction of real estate investment trusts (REITs), as a forward-looking step in its market development strategy.
This article is from "The Emerging Asia Pacific Capital Markets: Challenges and Opportunities," published by CFA Institute Research Foundation.
About the Author
Vidushan Premathiratne, CFA, is the founder and managing director of Elon Venture Catalysts, a boutique investment advisory and data analytics company in Sri Lanka. He also is an investment banker with 12 years of experience, including working with Asha Phillip Securities, York Street Partners, and Candor Capital.
Mr. Premathiratne serves as strategist, mentor, and financial adviser for many innovative startups and SMEs in Sri Lanka and has sourced, structured, and negotiated transactions involving debentures and merger and acquisition for leading corporates in Sri Lanka. Leading institutions seek his advisory expertise in such fields as data science, fixed income, derivatives, and digital payments. Mr. Premathiratne holds a bachelor’s degree (honors) in chemical engineering from the University of Nottingham (United Kingdom) and an MBA in marketing from the University of Colombo. He is a member of CMA (Australia) and a Certified Global Business Analyst (Australia).
Mr. Premathiratne is currently reading for his doctorate in business administration at the University of Colombo.