Investors sense opposition win - FT

[TamilNet, Friday, 23 November 2001, 04:55 GMT]
(News Feature) Anticipation of an opposition victory in Sri Lanka’s Parliamentary polls next month is driving the present rally on the country’s tiny market despite the decline across Asia, with possibilities of peace efforts and a more market-friendly government drawing investors, Britain’s Financial Times reported Thursday. The respected financial daily said that while stocks on the Colombo exchange are looking over-valued, the market could keep rising if good news on the political front continues.

The paper said that investors are hoping the main opposition United National Party (UNP), which pioneered the country's conversion to free-market policies in the late 1970s, will be able to arrest a worrying decline in the economy. The UNP might also have a better chance of ending the devastating civil war between the military and the Liberation Tigers of Tamil Eelam, the paper added.

"There's an expectation that there will be political change after the elections and the opposition United National Party will form the next government," Dhushyanth Wijesinghe, head of research at W.I. Carr/Asia Securities told the FT, adding that the election has sparked a flurry of buying by Sri Lankan retail investors.

Irrespective of which government comes to power, it will face difficulties. Sri Lanka's gross domestic product is expected to decline 2 to 3 per cent in the third quarter of this year and 1 per cent in the fourth quarter, leading to a full-year contraction of 1 to 1.5 per cent, Sri Lanka's first annual economic contraction in half a century, the FT said. In a report, the World Bank cited Central Bank of Sri Lanka estimates showing that the war slices 2-5 percentage points off GDP growth each year.

The new government's first priority will be to negotiate and end to the war to reduce defence spending, the paper said. The new administration will then have to look for ways to raise new funds to reduce pressure on the budget from government debt, estimated at 100 per cent of GDP.

According to the FT, economists blame the country's woes on slowing global orders for Sri Lanka's principal export, garments, combined with a weak agricultural sector. The problems have also been exacerbated by a recent intensification of the military conflict, it said.

The benchmark Colombo all-share index was up about 16 per cent since the beginning of the year and up by about 24 per cent since October 11, when President Chandrika Kumaratunga dissolved parliament and called general elections for December 5

"A UNP victory could take the market to 600 points [a rise of 10% on this week's levels] and, if they subsequently start negotiations with the LTTE, that could boost the market further," Mr Wijesinghe said.