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Sri Lanka’s EPF enters stock market with blood in the streets

ECONOMYNEXT – Sri Lanka’s 2.3 trillion rupee state-managed Employees’ Provident Fund, has returned to the Colombo Stock Exchange, Central Bank Governor Indrajit Coomaraswamy said with the benchmark index hitting seven year lows.

"The EPF has bought shares in one company last week," Governor Coomaraswamy told EconomyNext.

The governor said that EPF policy does not allow him to disclose the new investment.

Coomaraswamy said one of the main reasons for the EPF to enter the secondary stock market was due to the market currently being at a seven-year low, following a market crash after Easter Sunday bombings.

On May 16, Sri Lanka’s stocks were valued at a price to earnings multiple of 8.3 times on historical earnings, though banks and some other firms are taking a beating, with forward multiples set to fall, though there are value stocks to pick, analysts say.

Stocks have been hit by political unrest, liquidity shortages and a slowing economy.

Coomaraswamy declined to name the stock EPF was buying, though there was speculation that Dialog Axiata, Piramal Glass or John Keells Holdings may have been the target.

"The Monetary Board has approved the EPF Investment Committee to purchase shares in a small list of companies, which will be added to as time goes on," Coomaraswamy said.

"The investments will be made cautiously. The Monetary Board has approved the Investment Committee to invest up to 6 percent of the portfolio in equity."

At the end of 2018, around 92 percent of the 2.3 trillion rupee fund was invested in government securities, 3.3 percent in equity, 1.9 percent in corporate bonds and 1.5 percent in fixed deposits.

The fund was growing by around 300 billion rupees a year, while government borrowing requirements are shrinking, Coomaraswamy said.

"The new investment policy framework is still being finalized, and we are adding new things to it from time to time," he said.

"We can’t invest more in fixed deposits, because that may interfere with our monetary policy stance," he said.

"That narrows the options we have for investment."

Coomaraswamy had in the past months described the Sri Lankan stock market as going through a ‘fire sale’.

The EPF largely stayed off the market, except for some sporadic sales, after coming under fire for being a ‘buyer of last resort’ around 2011 in particular at peak valuations amid charges of corruption by dealers. (Colombo/May17/2019)

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